SECURITIES & EXCHANGE COMMISSION EDGAR FILING
NANOPHASE TECHNOLOGIES Corp
Form: 10-K
Date Filed: 2017-03-29
Corporate Issuer CIK: 883107
© Copyright 2017, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 000-22333
NANOPHASE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
36-3687863
(I.R.S. Employer Identification No.)
1319 Marquette Drive, Romeoville, Illinois 60446
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (630) 771-6708
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark if 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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based upon the last reported sale price of the
registrant’s common stock on June 30, 2016 was $10,265,000 as of such date.
The number of shares outstanding of the registrant’s common stock, par value $.01, as of March 14, 2017 was 31,229,996.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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Table of Contents
Business
General
Nanomaterials
Our Technologies
Marketing and Distribution Methods
Technology and Engineering
Manufacturing Operations
Intellectual Property and Proprietary Rights
Competition
Governmental Regulations, Including Climate Change
Employees
Backlog
Business Segment and Geographical Information
Key Customers
Forward-Looking Statements
Investor Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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Item 1. Business
General
PART I
Nanophase Technologies Corporation (“Nanophase” or the “Company”, including “we”, “our” or “us”) is an advanced materials and applications
developer and commercial manufacturer with an integrated family of materials technologies. We produce engineered nano and sub-micron materials for use in a
variety of diverse markets: personal care including sunscreens, architectural coatings, industrial coating applications, abrasion-resistant additives, plastics
additives, medical diagnostics, energy and a variety of surface finishing technologies (polishing) applications, including optics.
While our origin is based on the creation of nanoscale metal oxide products, we have expanded our offerings to include larger but still sub-micron
materials. We have developed techniques for managing attributes including particle size, shape, surface coatings, and other valuable aspects of the material.
Our focus is on customer need where we believe we have an advantage, as opposed to finding uses for one particular technology. Additionally, as the format of
delivery is important to customers, we have developed proprietary capabilities for dispersing our materials into both aqueous (water-based) and solvent-based
liquid media. These capabilities allow us to better integrate with the customer’s need and application. Finally, we have expanded our offerings beyond active
ingredients to include targeted full formulations of skin care products, marketed and sold by our wholly-owned subsidiary, Solésence ™ LLC.
We target markets in which we believe practical solutions may be found using our products. We work closely with current and potential customers in
these target markets to identify their material and performance requirements. We market our materials to various end-use applications manufacturers and our
Solésence ™ solutions to cosmetic and skin care brands. Recently developed technologies have made certain new products possible and opened potential new
markets. We expect growth in end-user (manufacturing customers, including customers of our customers) adoption in 2017 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. During 2015 we were
granted a patent on a new type of particle surface treatment (coating), which became the cornerstone of our new product development in personal care, with first
revenue recognized during 2016 and the creation of our Solésence ™ LLC subsidiary to manufacture and sell fully developed solutions to targeted customers in
the skin care industry, in addition to the additives we have traditionally sold in the personal care area. During 2015 and 2016 we developed and began to sell
solutions in the energy management (particularly solar control) industry. We believe that successful introduction of our materials with manufacturers may lead to
follow-on orders for other materials in their 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.
We have created a leading commercial approach to the application of our integrated materials technologies designed to deliver an optimal engineered
solution for a target market or specific customer application. With respect to our products, we have complete capability from application development and
laboratory samples through pilot production and, finally, commercial production currently at rates as high as hundreds of metric tons per year for individual
products. We have development and application laboratories and manufacturing capacity in two locations in the Chicago area. Our manufacturing is based on
Lean Six Sigma discipline and is certified to ISO 9001, American National Standard, Quality Management System Requirements; ISO 14001, American National
Standard, Environmental Management System Requirements; and is compliant with current Good Manufacturing Practices (“cGMP”) for products under U.S.
Food and Drug Administration (“FDA”) regulation.
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We have undergone a strategic shift during recent years toward penetrating key markets via interactive applications development with end-use
customers in these markets. We also supply both nanoscale and larger materials, based on market requirement. We believe this strategy leverages the
applications development expertise we have cultivated over the last several years and best positions us to build direct sales to end-use customers, in addition to
translating these advantages through our market partners.
Nanomaterials
Nanomaterials are generally comprised of particles (nanoparticles) that are less than 100 nanometers in diameter and these nanoparticles have a wide
range of unique properties owing to their very small size. A nanometer is one-billionth of a meter, or about 100,000 times smaller in size than the width of a
human hair.
Nanotechnology involves manipulating the properties of materials, made up of basic elements or combinations thereof, at the 100-nanometer level or
below. At this scale, the relatively small number of constituent atoms, the large proportion of these atoms on surfaces, and their confined dimensions lead
materials to exhibit unique properties that can be used in many applications to benefit performance.
Nanomaterials are an important and enabling part of the diverse field of nanotechnology and are the building blocks of our nanotechnology products. The
ultimate performance and value of Nanophase’s products in a given application is a function of nanoparticle composition, size, shape, structure, surface
chemistry and coating and dispersion potential. Our technologies for engineering and manufacturing nanomaterials, and our understanding of how to make
nanomaterials exhibit desirable performance characteristics in various media, result in commercial nanomaterials solutions that we believe offer superior
performance in many applications.
Nanomaterials have applications in diverse global markets where they are incorporated into a process, such as optics polishing, or a product, such as an
industrial coating to prevent degradation or aid in application, or significantly improve wear resistance, or promote/hamper particular chemical reactions within
respective systems. Multiple markets exist for our products since nanomaterials offer advantages in many applications, such as improved properties and
performance, longer wear or product life, lower overall product cost, or in the development of new products or processes.
Most of the raw materials we use are commercially available. In some cases, we rely on sole-source processors of materials that utilize an array of
worldwide sources for the raw materials that they process to our specifications. However, in certain cases we deal with very limited supply of certain elements,
such as those classified as “Rare Earth” elements- specifically cerium oxide for use in surface finishing technologies (polishing) applications, as well as the very
high purity zinc that we use in personal care applications.
Our Technologies
We have created an integrated platform of commercial nanomaterial technologies that are patented, patent-pending or proprietary. These technologies
are designed to deliver a nanomaterial solution for a targeted market or a specific customer application. Our platform provides flexibility and capability to engineer
nanomaterials that meet a customer’s performance requirements and delivers our nanomaterial solutions in a readily usable format. Our technologies are
scalable and robust, having produced several hundred metric tons annually.
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Our nanomaterials platform includes two distinct manufacturing processes (PVS – Plasma Vapor Synthesis and NAS - NanoArc® Synthesis) to make
nanomaterials or nanoparticles. These technologies allow us to control critical nanomaterial properties (composition, size, shape, structure, surface chemistry)
and engineer these attributes to meet specific application performance. Compared to other well-developed known nanoparticle processes, our plasma-produced
particles are produced as nonporous, dense, discrete single crystals, which we believe possess a unique set of bulk and surface properties.
Perhaps of greater importance, we have developed proprietary technology to disperse nanoparticles in both aqueous (water-based) and several organic
solvent systems. These dispersions are stable at high weight loading (typically 18-55% by weight). These aspects provide distinct market advantages. Dispersed
nanomaterials are desired by many customers for use in their processes or products because of the ease of incorporation. As examples, dispersed
nanomaterials are used in industrial coatings, plastic additives and optical and semiconductor polishing. This integration flexibility allows us to serve more
customers and serve them better, and is critical to our role as a solutions provider, not simply that of a materials provider.
We have also developed patented and proprietary technology to coat or surface treat nanoparticles to further engineer surface chemistry by two main
processes. In many applications, such as sunscreens, this technology is vital to ensure formulation compatibility and, in some cases, optimal application
performance. We deliver hundreds of metric tons of surface engineered nanoparticles to our customers annually, including coated nanomaterials that are used
by major global consumer products companies for sunscreens and personal care products.
As markets continue to develop and grow, we believe that customers’ preferred delivery formats will often be dispersed and/or coated nanomaterials. We
believe we are well-positioned with our platform of integrated commercial nanomaterial technologies to respond to this demand. We plan to maintain and
advance our intellectual property and technologies to remain competitive in the fields of nanomaterials development, applications development and
commercialization.
We have used our expertise in nanoscale materials to develop larger sub-micron particle–based products that are not considered “nano” in various
applications. Controlling aspects including particle size and shape, as well as surface chemistries, allow us to provide superior materials to the marketplace in
various formats, both at the nano level and above.
We have steadily expanded our ability to commercially utilize and deliver our technologies. Through large-scale manufacturing of nanomaterials utilized
in the manufacture of consumer sunscreen and personal care products and architectural coatings, we have developed production expertise that has allowed us
to improve processes relating to those nanomaterials as well as processes relating to other nanomaterials. This experience has translated into additional know-
how, intellectual property and advances in the technologies and manufacturing processes that reduce variable manufacturing costs and improve gross margins.
Marketing and Distribution Methods
We focus our marketing strategy on differentiated solutions that create superior value for our customers. This customer-focused strategy means we are
not solely dependent upon the efforts of a distributor for future sales growth. We have found many cases where our ability to effectively integrate nanomaterials
into a customer’s specific chemistry is critical to presenting an effective solution. Given this reality, we launched a “customer direct” business model during 2009
for those markets that are not conducive to an intermediary. In these markets, we interact with customers directly rather than through intermediaries,
demonstrating the benefits of our solutions in their products. Our deep market knowledge of certain markets and applications has allowed us to understand
customer needs and our products’ value proposition, and adapt our offerings accordingly. This knowledge, combined with our applications development
expertise, supports leveraging our development efforts by marketing and selling our solutions to multiple customers within each market. We work closely with
each customer to develop a material solution for that entity’s specific application(s), but we find that as we develop greater applications development expertise in
a given area, specific applications development often becomes a routine process within Nanophase. This is where we believe our future customers will perceive
the greatest value in working with us, and where we will be able to leverage our product development efforts into multiple revenue generating customer
solutions.
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We see this customer-focused marketing approach increasing our probability of success in many markets, allowing us to use an integrated platform of
material technologies and typically reducing the total time-to-market. The more our applications development scientists and sales team work directly with
customers to develop nanomaterial solutions, the more quickly and successfully we believe we will be able to grow sales.
In addition to serving customers in diverse markets and geographic locations, we will continue to devote significant resources to maintaining and growing
our relationship with BASF Corporation (“BASF”), our largest customer in the personal care market. This has been a successful relationship that we expect will
contribute to our future growth. BASF, which describes itself as the world’s leading chemical company with revenue of approximately $100 billion, is a global
leader in the personal care market with recognized brands, significant revenues and sales reach. We have a long-term exclusive relationship with BASF,
primarily to provide zinc oxide-based products to be used in personal care with sunscreens and daily wear products being the dominant applications.
In addition to the personal care applications described above, our products are used in a variety of other applications, including architectural coatings,
polishing applications (including optical glass and CMP), plastics additives, medical diagnostics, textiles and graphic arts, energy control applications, and others.
Recent activities have expanded our presence in the personal care space, with a new particle surface treatment process (coating) providing the basis for new
product offerings. 2016 saw our first revenue from products using our proprietary particle coating, which we look to expand under our new Solésence ™ brand.
Because our technology can be applied to a wide variety of applications, we focus our efforts on only a handful of applications to gain a depth of
knowledge and leverage our learning curve. If we find a unique application outside of our core markets that does not require significant development resources
then we may pursue it as “opportunistic” business. We believe this focused approach will contribute to a higher success rate for related opportunities than we
would experience by pursuing more opportunities simultaneously.
Technology and Engineering
Our efforts in research and development, process engineering and advanced engineering groups are focused in three major areas: 1) application
development for our products; 2) creating or obtaining additional core material technologies and/or materials that have the capability to serve multiple markets;
and 3) continuing to improve our core technologies to improve manufacturing operations and reduce costs.
Most of our research and development is directly related to applications development. We endeavor to either meet specific customer needs or to develop
applications solutions to address unmet needs in a particular market where we believe our materials will offer a distinct performance advantage. We believe that
aggressively pursuing applications in targeted areas will help us compete as a technical and commercial innovator using our materials expertise, and more
importantly, become perceived as a solutions provider by our customers and not simply as another materials supplier.
Our total research and development expense, which includes all expenses relating to our technology and advanced engineering groups, during the years
ended December 31, 2016 and 2015, was $1.6 million and $1.3 million, respectively. This represents our share of these expenses only and does not take into
account amounts spent by any of our customers in support of new product development. Our future success will depend in large part upon our ability to develop
products which bring a high degree of value to our customers’ products. Through the three-year period ended December 31, 2016, we had cumulative research
and development expenses of approximately $4 million and cumulative expenditures on equipment and leasehold improvements of approximately $0.7 million.
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Manufacturing Operations
We have manufacturing capacity based in two locations in the Chicago area. At each of these facilities, we are able to develop and supply nanomaterials
in quantities ranging from grams to metric tons. Our facilities are certified to ISO 9001:2008 international standards and are cGMP compliant for applicable bulk
pharmaceutical manufacturing. We are also in the process of registering some of the chemicals we ship to customers in Europe pursuant to the European
Chemical Agency’s regulations issued to date pertaining to Registration Evaluation and Authorization of Chemicals (“REACH”). We have registered Zinc Oxide
and Aluminum Oxide under REACH and filed preliminary registrations for other materials. Our facilities are also certified to the international standard for
environmental management, ISO 14001:2004.
Our operations employ a cellular, team-based manufacturing approach, where workers operate in work “cells,” under a lean manufacturing environment
to continuously advance and improve production capabilities. We have also developed a highly flexible workforce that has been cross-trained to allow it to be
employed broadly across our manufacturing processes. Our manufacturing approach and targeted engineering actions have resulted in continuing process
innovations and improvements that have reduced the variable manufacturing cost significantly over the past several years.
We are committed to a lean manufacturing approach, to the extent possible given a certain measure of irregular demand, where we are able to reduce
excess labor and manage the lowest practical inventory and supply levels in order to minimize working capital demands. This approach complements two of our
major operational goals - (1) to increase output without adding unnecessarily to existing equipment and (2) to continually reduce production costs while
consistently producing high quality products.
Intellectual Property and Proprietary Rights
We rely on a combination of patent, trademark, copyright, trade secret and other intellectual property laws, nondisclosure agreements and other
protective measures to protect our intellectual property. In addition to obtaining patent and trademarks based on our inventions and products, we may also
license certain third-party patents from time-to-time to expand our technology base.
As of the date of this filing, we own 11 U.S. patents and 1 pending U.S. patent application. We also own 34 foreign patents and patent applications
consisting of 26 issued or allowed foreign patents and 8 pending foreign patent applications. All of the pending and owned foreign patents are counterparts to
domestic filings covering our platform of nanotechnologies. Our oldest issued patents began to expire during 2013. We do not believe that the expiration of these
patents will have a material impact on our business or financial condition.
Competition
Within each of our targeted markets and product applications, we face potential competition from advanced materials and chemical companies, and
suppliers of traditional materials. In many markets, the actual or potential competitors are larger and more diversified than we are; however, we believe we focus
in market segments and opportunities where our materials and related technologies are superior to those of our competitors, often due to our ability to produce
highly engineered products to meet specific performance requirements and develop nanomaterial solutions for customers’ specific applications.
With respect to traditional suppliers, we may compete against lower priced traditional materials for certain customer applications. In some product or
process applications the benefits of using nanomaterials do not always justify a process change or outweigh their frequently higher costs.
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With respect to larger producers of nanomaterials, while many of these producers do not currently offer directly competitive products, these companies
may have greater financial and technical resources, larger research and development staffs, and greater manufacturing and marketing capabilities, and could
compete directly against us. In addition, the number of development-stage companies involved in nanocrystalline materials continues to grow on a global basis,
posing increasing competitive risks. Many of these companies are associated with university or national laboratories and use chemical and physical methods to
produce nanocrystalline materials. We believe that most of these companies are engaged primarily in funded research and not commercial production; however,
they may represent competitive risks in the future. Some development-stage companies, especially in other countries, receive significant government assistance
or enjoy other benefits due to their location. We anticipate that foreign competition will play a greater role in the nanomaterials arena in the future, something we
are increasingly seeing today, albeit indirectly.
In addition to competition in the advanced materials and related markets, our Solésence ™ LLC subsidiary faces competition from a wide variety of
offerings in the field of skin care. Solésence ™ competes with existing solutions as well as new solutions from a wide variety of sources, and must differentiate its
value proposition in order to gain traction in this marketplace.
We believe that our nanomaterial technologies and manufacturing platforms are strong. We believe we are well-positioned with our platform of integrated
commercial nanomaterial technologies and track record of technology improvement and evolution.
Governmental Regulations, Including Climate Change
The manufacture and use of certain of the products that contain our nanocrystalline materials are subject to governmental regulations. As a result, we are
required to adhere to the cGMP requirements of the FDA and similar regulations that include testing, control and documentation requirements enforced by
periodic inspections. We are also in the process of registering some of the chemicals we ship to customers in Europe in compliance with the European Chemical
Agency’s regulations issued to date pertaining to REACH (to date, we have registered Zinc Oxide and Aluminum Oxide under REACH and filed preliminary
registrations for other materials).
We are committed to environmental health and safety (“EH&S”). We believe we comply with all applicable exposure limit standards issued by OSHA.
Because nanotechnology remains an emerging and evolving science, there are no currently accepted standards, measurements or personal protective
equipment available that are specific to nanoparticle safety. Accordingly, we rely on general chemical safety and process safety practices to identify safe
personal protective equipment and appropriate handling protocols. We believe that we have taken a leadership position on EH&S in our operations and have
internal and external review and monitoring of our practices.
In addition, our facilities and operations are subject to the plant and laboratory safety requirements of various environmental and occupational safety and
health laws. We believe we are in compliance with all such laws and regulations, and to date, those regulations have not materially restricted or impeded
operations. Further, we believe our processes to be highly efficient, generating very low levels of waste and emissions. For this reason, we do not view issues
surrounding climate change and any currently foreseeable related regulations as materially impacting our business and financial statements, beyond any
inestimable impact on the macro-economic environment.
We have taken a responsible, proactive approach to EH&S by implementing appropriate procedures and processes to have our facilities certified to ISO
14001, American National Standard, Environmental Management System Requirements. We are also involved with leading industry groups that are defining
nanomaterial standards and protocols. These currently include the ASTM International Committee on Nanotechnology, Nanoscale Materials Stewardship
Program under the Toxic Substances Control Act, and the US TAG to ISO TC 229 Nanotechnology committee managed by the American National Standards
Institute committee (ANSI). We also participate in FDA reviews relative to cosmetic applications. We have a full-time, advanced degreed professional who
spends a significant amount of time managing governmental regulation compliance and EH&S. We believe that our Company has an exemplary safety record.
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Employees
On December 31, 2016, we had a total of 46 full-time employees, 6 of whom hold advanced degrees. We have no collective bargaining agreements and
believe that we have a strong relationship with our employees.
Backlog
We do not believe that a backlog as of any particular date is indicative of future results. Our sales are primarily pursuant to purchase orders for delivery of
our nanomaterials. We have some agreements that give customers the right to purchase a specific quantity of nanomaterials during a specified time period.
These agreements, however, do not obligate the customers to purchase any minimum quantity of such nanomaterials. The quantities actually purchased by the
customer, as well as the shipment schedules, are frequently revised during the agreement term to reflect changes in the customer’s needs. For these reasons
we do not believe that such agreements are meaningful for determining backlog amounts.
Business Segment and Geographical Information
Our operations comprise a single business segment and all of our long-lived assets are located within the United States. See Note 13 to the
accompanying Financial Statements for additional information.
Key Customers
A limited number of key customers account for a substantial portion of our commercial revenue. In particular, revenue from three customers - our largest
customer in personal care applications (BASF), our largest coatings customer, and our medical diagnostics application customer - constituted approximately
69%, 5% and 4%, respectively, of our 2016 total revenue. Many of our customers are significantly larger than we are and, therefore, may be able to exert a high
degree of influence over us. While our agreements with BASF are long-term agreements, they may be terminated by BASF under certain circumstances with
reasonable notice and do not provide any guarantees that BASF will buy our products. The loss of one of our largest customers or the failure to attract new
customers could have a material adverse effect on our business, results of operations and financial condition. Due to the high concentration of sales to a limited
number of customers, we have aggressively pursued new customers through our customer direct business model. To the extent we are successful in adding a
large number of customers through this model and maintaining or expanding our existing partners, we believe we will be able to best manage the risks
associated with customer concentration.
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Forward-Looking Statements
We want to provide investors with more meaningful and useful information. As a result, this Annual Report on Form 10-K (the “Form 10-K”) contains
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 2017 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 nanocrystalline materials; our manufacturing capacity and product mix flexibility in light
of customer demand; our limited marketing experience; 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 that could be difficult to respond to or costly to comply with; and the resolution of litigation or
other legal proceedings in which we may become involved. In addition, our forward-looking statements could be affected by general industry and market
conditions and growth rates. Readers of this Form 10-K 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.
Investor Information
We are subject to the informational requirements of the Exchange Act and, accordingly, file periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the “SEC”). Such reports, proxy statements and other information may be obtained by visiting the Public Reference
Room of the SEC at 100 F Street, N.E., Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.
Financial and other information may also be accessed at our website. The address is www.nanophase.com. We make available, free of charge, copies
of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the SEC,
and intend to make all such reports and amendments to reports available free of charge on our website. We have included our website address throughout this
Form 10-K as textual references only. The information contained on, or accessible through, our website is not incorporated into this Form 10-K.
Item 1A. Risk Factors
The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Annual
Report on Form 10-K and presented elsewhere by management from time to time. Such factors may have a material adverse effect on our business, financial
condition, and results of operations, and you should carefully consider them before deciding to invest in, or retain, shares of our common stock. Additional risks
and uncertainties not presently known to us or which are currently not believed to be material or which we have not predicted may also harm our business
operations or affect our actual results. Because of these and other factors, past performance should not be considered an indication of future performance.
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We have a history of losses that may continue in the future.
We have incurred net losses in each year since our inception, with net losses of $1.3 million in 2016 and $1.2 million in 2015. As of December 31, 2016, we
had an accumulated deficit of approximately $95 million and may incur a loss on an annual basis during 2017. We believe that our business depends, among
other things, on our ability to significantly increase revenue. If revenue fails to grow at anticipated rates or if operating expenses increase without a
commensurate increase in revenue, or if we fail to adjust operating expense levels accordingly, then the imbalance between revenue and operating expenses
will negatively impact our cash balances and our ability to achieve profitability in future periods.
We depend on a few major customers for a high percentage of our sales, and the loss of orders from a significant customer could cause a decline in
revenue and/or increases in the level of losses incurred.
Sales to our customers are executed pursuant to purchase orders and long-term supply contracts; however, customers can cease doing business with us at
any time with limited advance notice. It is possible that a significant portion of our future sales may remain concentrated within a limited number of strategic
customers. We may not be able to retain our strategic customers, such customers may cancel or reschedule orders, or in the event of canceled orders, such
orders may not be replaced by other sales or by sales that are on as favorable terms. In addition, sales to any particular customer may fluctuate significantly from
quarter to quarter, which could affect our ability to achieve anticipated revenues on a quarterly basis.
Sales to our three largest customers accounted for 69%, 5% and 4%, respectively, of our total revenue in 2016 and sales to these same customers
accounted for 63%, 4% and 7%, respectively, of our total revenue in 2015.
We plan to expand both our marketing and business development efforts and our production efficiency in order to address the issues of our dependence
upon a limited amount of customers, enhancement of gross profit and operating cash flows, and the achievement of profitability. Given the nature of our products,
and the fact that markets for them are not yet fully developed, it is difficult to accurately predict when additional large customers will materialize. Going forward,
our margins, as a percentage of revenue, will be dependent upon revenue mix, revenue volume, raw materials pricing, and our ability to effectively manage
costs. The extent of the growth in revenue volume and the related gross profit that this revenue generates will be the main drivers in generating positive
operating cash flows and, ultimately, net income.
Any downturn in the product markets served by us would harm our business.
A majority of our products are incorporated into products such as personal care applications including sunscreens. Additional product areas include
architectural coatings, surface finishing technologies (polishing), medical diagnostics, solar control applications/energy management, abrasion-resistant coatings
and other products. These markets have from time to time experienced cyclical, depressed business conditions, often in connection with, or in anticipation of, a
decline in general economic conditions. These industry downturns often result in reduced product demand and declining average selling prices. Our business
would be harmed by a continuation of any downturn and/or any future downturns in the markets that we serve.
Our products often have long adoption cycles, which could make it difficult to achieve market acceptance and makes it difficult to forecast revenues.
Due to their often novel characteristics and potential unfamiliarity with them that exists in the marketplace, our nanomaterials may require longer adoption
cycles than existing materials technologies, to the point that adoption cycles typically require one to five years. Our nanomaterials have to receive appropriate
attention within any potential customer’s organization, and then they must be tested to prove a performance advantage over existing materials, typically on a
systems-cost basis. Once we have proven initial commercial viability, pilot scale production runs are typically required and completed by the customer, followed
by further testing. Once production-level commercial viability is established, then our nanomaterials can be introduced, often to a downstream marketplace that
needs to be familiarized with them. If we are unable to demonstrate to our potential customers the performance advantages and economic value of our
nanomaterials over existing and competing materials and technologies, we will be unable to generate significant sales. Our long adoption cycle makes it difficult
to predict when sales will occur.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We frequently depend on collaborative development relationships with our customers. If we are unable to initiate or sustain such collaborative
relationships or if the terms of these relationships limit the distribution of our products, then we may be unable to successfully develop, manufacture
or market our current and future nanomaterials or applications.
We have established, and will continue to pursue, strategic relationships with many of our customers and do not have a substantial direct sales force or an
established distribution network (other than distribution arrangements for research samples). Through these relationships, we seek to develop new applications
for our nanomaterials and share development and manufacturing resources. We also seek to coordinate the development, manufacture and marketing of our
nanomaterials products, particularly as a result of our selling additives that must be integrated into complete formulations by the customer. Future success will
depend, in part, on our continued relationships with these customers and our ability to enter into similar strategic relationships with other customers. Our
customers may not continue in these collaborative development relationships, may not devote sufficient resources to the development or sale of our materials or
may enter into strategic development relationships with our competitors. These customers may also require a share of control of these collaborative programs.
While less prevalent than in the past, some of our agreements with these customers limit our ability to license our technology to others and/or limit our ability to
engage in certain product development or marketing activities with others. These relationships generally can be terminated unilaterally by customers.
If we are unable to initiate or sustain such collaborative relationships or if the terms of these relationships materially limit our access to distribution
channels for our products, then we may be unable to successfully develop, manufacture or market our current and future nanomaterials or applications.
If commodity metal prices increase at such a rate that we are unable to recover lost margins on a timely basis or that our products became
uncompetitive in their current marketplaces, our financial and liquidity position and results of operations would be substantially harmed.
Many of our significant raw materials come from commodity metal markets that may be subject to rapid price increases. While we generally have been able
to pass a significant portion of commodity “price-related” increases on to our customers, it is possible that, given our limited customer base and the limited
control we have over it, commodity metal prices could increase at such a rate that could hinder our ability to recover lost margins from our customers. Such a
potential challenge could be exacerbated as our specifications often require particular grades/types of these materials, including certain materials that are
classified as “Rare Earth” elements and very high purity zinc, that are available in limited supply. It is also possible that such drastic cost increases could render
some of our materials uncompetitive in their current marketplaces when considered relative to other materials on a cost benefit basis. If either of these potential
results occurred, our financial and liquidity position and results of operations would be substantially harmed.
Protection of our intellectual property is limited and uncertain.
Our intellectual property is important to our business. We seek to protect our intellectual property through patent, trademark, copyright, and trade secret
protection and confidentiality or license agreements with our employees, customers, suppliers and others. Our means of protecting our intellectual property rights
in the United States or abroad may not be adequate and others, including our competitors, may use our proprietary technology without our consent. We may not
receive the necessary patent protection for any applications pending with the U.S. Patent and Trademark Office (“USPTO”) and any of the patents that we
currently own or license may not be sufficient to keep competitors from using our materials or processes. In addition, patents that we currently own or license
may not be held valid if subsequently challenged by others and others may claim rights in the patents and other proprietary technology that we own or license.
Additionally, others may have already developed or may subsequently develop similar products or technologies without violating any of our proprietary rights. If
we fail to obtain or maintain patent protection or preserve our trade secrets, we may be unable to effectively compete against others offering similar products
and services. In addition, if we fail to operate without infringing the proprietary rights of others or lose any license to technology that we currently have or will
acquire in the future, we may be unable to continue making the products that we currently make.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Moreover, at times, attempts may be made to challenge the prior issuance of our patents. Furthermore, litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could harm our business, operating results and financial
condition. Such litigation might occur with parties that have substantially greater resources, and thus more capability to engage and continue litigation. In addition,
if others assert that our technology infringes their intellectual property rights, resolving the dispute could divert our management team and financial resources.
Due to the expanding length of time required in order to obtain a patent, and the inherent ongoing risks of the protections truly provided by any patent, we
made a decision during 2008 that we could no longer place a value on these intangible assets. In the future, we may license certain of our intellectual property,
such as trademarks, to third parties. While we would attempt to ensure that any licensees maintain the quality and value of our brand, these licenses might
diminish this quality and value.
If a catastrophe strikes either of our manufacturing facilities or if we were to lose our lease for either facility due to non-renewal or other unforeseen
events, we may be unable to manufacture our materials to meet customers’ demands.
Our manufacturing facilities are located near Chicago - in Romeoville and Burr Ridge, Illinois. These facilities and some of our manufacturing and testing
equipment would be difficult to replace in a timely manner. Therefore, any material disruption at one of our facilities due to a natural or man-made disaster or a
loss of lease due to non-renewal or other unforeseen events could have a material adverse effect on our ability to manufacture products to meet customers’
demands. While we maintain property insurance, this insurance may not adequately compensate us for all losses that we may incur in the event of a material
interruption in our business.
If we are unable to expand our production capabilities to meet unexpected demand, we may be unable to manage our growth and our business would
suffer.
Our success will depend, in part, on our ability to manufacture nanomaterials in significant quantities, with consistent quality and in an efficient and timely
manner. We expect to be able to expand our current facilities or obtain additional facilities in the future, and outsource production aspects as necessary,
available and appropriate, in order to respond to unexpected demand for existing materials or for new materials that we do not currently make in quantity. Such
unplanned demand, if it resulted in rapid expansion, could create a situation where growth could become difficult to manage, which could cause us to lose
potential revenue.
Our industry is experiencing rapid changes in technology. If we are unable to keep pace with these changes, our business may not grow.
Rapid changes have occurred, and are likely to continue to occur, in the development of advanced materials and processes. Our success will depend, in
large part, upon our ability to keep pace with advanced materials technologies, industry standards and market trends and to develop and introduce new and
improved products on a timely basis. We expect to commit substantial resources to develop our technologies and product applications and, in the future, to
expand our commercial manufacturing capacity as volume grows. Our development efforts may be rendered obsolete by the research efforts and technological
advances of others and other advanced materials may prove more advantageous than those we produce.
The markets we serve are highly competitive, and if we are unable to compete effectively, then our business will not grow.
The advanced materials industry is new, rapidly evolving and intensely competitive, and we expect competition to intensify in the future. The market for
materials having the characteristics and potential uses of our nanomaterials is the subject of intensive research and development efforts by both governmental
entities and private enterprises around the world. We believe that the level of competition will increase further as more product applications with significant
commercial potential are developed. The nanomaterials product applications that we are developing will compete directly with products incorporating both
conventional and advanced materials and technologies. While commercially available competitive products may not possess the same attributes as those we
offer, other companies may develop and introduce new or competitive products. Our competitors may succeed in developing or marketing materials,
technologies and better or less expensive products than the ones we offer. In addition, many of our potential competitors have substantially greater financial and
technical resources, and greater manufacturing and marketing capabilities than we do. If we fail to provide nanomaterials at an acceptable price, or otherwise
compete on a commodity basis with producers of conventional materials, we will lose market share and revenue to our competitors.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We may need to raise additional capital in the future, which may not be available on acceptable terms or at all. 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 or we may be required to sell key production equipment to our largest customer.
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. 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. 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.
To raise additional funds in the future, we would likely sell our equity or debt securities or enter into loan agreements. To the extent that we issue debt
securities or enter into loan agreements, we may become subject to financial, operational and other covenants that we must observe. In the event that we were
to breach any of these covenants, then the amounts due under such loans or debt securities could become immediately payable by us, which could significantly
harm us. To the extent that we sell additional shares of our equity securities, our stockholders may face economic dilution and dilution of their percentage of
ownership.
We currently have a supply agreement with BASF that contains provisions which could potentially result in a mandatory license of technology and/or sale of
production equipment to BASF, providing capacity sufficient to meet BASF’s production needs. Under our supply agreement with BASF, a “triggering event” also
would occur:
•
•
if our earnings for a twelve month period ending with our most recently published quarterly financial statements are less than zero and our cash, cash
equivalents and certain investments are less than $1 million, or
upon the acceleration of any debt maturity having a principal amount of more than $10 million, or if we become insolvent as defined in the supply
agreement.
In the event of a triggering event where we are required to sell to BASF production equipment providing capacity sufficient to meet BASF’s production
needs, the equipment would be sold at either 115% of the equipment’s net book value or at the greater of 30% of the original book value of such equipment
(including any associated upgrades to it) or 115% of the equipment’s net book value, depending on the particular equipment and contract.
If we were determined to have materially breached certain other provisions of our supply agreement with BASF, we similarly could be subject to a
“triggering event” that potentially could result in a mandatory license of technology and/or sale of certain production equipment to the customer.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
If a triggering event were to occur and BASF elected to proceed with the license and related sale mentioned above, 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 would be purchased
and removed by the customer pursuant to this triggering event could take in excess of 12 months. Any additional capital outlays required to rebuild capacity
would probably be greater than the proceeds from the purchase of the assets pursuant to our agreement with BASF. This potential shortfall might put us in a
position where it would be difficult to secure additional funding given what would then be an already tenuous cash position. Such an 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
would be difficult to quickly replace and train. Upon the occurrence of such an event, we might not be able to hire and retrain skilled employees given the stigma
relating to such an event and its impact on us. We might elect to effectively reduce our size and staffing to a point where we could remain a going concern in the
near term.
We depend on key personnel, and their unplanned departure could harm our business.
Our success will depend, in large part, upon our ability to attract and retain highly qualified research and development, management, manufacturing,
marketing and sales personnel on favorable terms. Due to the specialized nature of our business, we may have difficulty locating, hiring and retaining qualified
personnel on favorable terms. If we were to lose the services of any of our key executive officers or other key personnel, or if we are unable to attract and retain
other skilled and experienced personnel on acceptable terms in the future, or if we are unable to implement a succession plan to prepare qualified individuals to
assume key roles upon any loss of our key personnel, then our business, results of operations and financial condition could be materially harmed.
We face potential product liability risks which could result in significant costs that exceed our insurance coverage, damage our reputation and harm
our business.
We may be subject to product liability claims in the event that any of our products are alleged to be defective or cause harmful effects to humans or
physical environments. Because our nanomaterials are used in other companies’ products, to the extent our customers become subject to suits relating to their
products, these claims may also be asserted against us. As our Solésence ™ LLC subsidiary sells fully formulated skin care products to firms in that space, we
are now supplying completed products in addition to ingredients. We may incur significant costs including payment of significant damages, in defending or
settling product liability claims. Although we maintain insurance for product liability claims, our coverage may not prove sufficient. Even if a suit is without merit
and regardless of the outcome, claims can divert management time and attention, injure our reputation and adversely affect demand for our nanomaterials.
We may be subject to periodic litigation and other regulatory proceedings or governmental investigations, which could result in the unexpected
expenditure of time and resources.
From time to time, we may be a defendant in lawsuits and regulatory proceedings or are the subject of governmental investigations relating to our business.
Due to the inherent uncertainties of litigation, regulatory proceedings and governmental investigations, we cannot accurately predict the ultimate outcome of any
such proceedings or investigations. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations.
In addition, regardless of the outcome of any litigation, regulatory proceedings or governmental investigations, such matters are expensive and will require that
we devote substantial resources and executive time to defend, thereby diverting management’s attention and resources that are needed to successfully run our
business.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The disclosure requirements under the “conflict minerals” provisions of the Dodd-Frank Act could increase our costs and limit the supply of certain
metals used in our products and affect our reputation with customers and shareholders.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, or the Dodd-Frank Act, the SEC adopted disclosure
requirements, which became effective in 2014, for public companies using certain minerals and metals in their products. These minerals and metals are
generally referred to as “conflict minerals” regardless of their country of origin. Commercial sales of our products containing these materials began during 2015.
Under these rules, we are required to perform due diligence and disclose our efforts to prevent the sourcing of such conflict minerals from the Democratic
Republic of Congo or adjoining countries. As a result of these regulations, we have incurred and expect to continue to incur costs to comply with the disclosure
requirements, including costs related to determining the source of any of the conflict minerals used in our products. These new requirements could also
adversely affect the sourcing, availability and pricing of such minerals, and the pool of suppliers who provide “conflict free” metals may be limited. As a result, we
or our suppliers may not be able to obtain materials necessary for production of our products in sufficient quantities or at competitive prices. In addition, we may
not be able to sufficiently verify the origins of all metals used in our products and confirm that they are “conflict free,” which may adversely affect our reputation.
We are subject to governmental regulations. The costs of compliance and liability for noncompliance with governmental regulations could have a
material adverse effect on our business, results of operations and financial condition.
Current and future laws and regulations may require us to make substantial expenditures for preventive or remedial action. Our operations, business or
assets may be materially and adversely affected by governmental interpretation and enforcement of current or future environmental, health and safety laws and
regulations. In addition, our coating and dispersion operations may pose a risk of accidental contamination or injury. The damages in the event of an accident or
the costs to prevent or remediate a related event could exceed both the amount of our liability insurance and our resources or otherwise have a material adverse
effect on our business, results of operations and financial condition.
In addition, both of our facilities and all of our operations are subject to the plant and laboratory safety requirements of various occupational safety and
health laws. We believe we have complied in all material respects with governmental regulations applicable to us. However, we may have to incur significant
costs in defending or settling future claims of alleged violations of governmental regulations and compliance with these regulations may materially restrict or
impede our operations in the future. In addition, our efforts to comply with or contest any regulatory actions may distract personnel or divert resources from other
important initiatives.
The manufacture and use of certain products that contain our nanomaterials are subject to extensive governmental regulation, including regulations
promulgated by the FDA, the U.S. Environmental Protection Agency and OSHA. As a result, we are required to adhere to the requirements of the regulations of
governmental authorities in the United States and other countries, including regulations issued to date pertaining to REACH. These regulations could increase
our cost of doing business and may render some potential markets prohibitively expensive. In addition, new rules or regulations could impose restrictions or
prohibitions on certain materials being marketed with or incorporated into certain applications, which could limit our ability to sell our nanomaterials in the
marketplace.
A large investor and his affiliates have significant influence on all matters requiring stockholder approval because they beneficially own a large
percentage of our common stock and they may vote their shares of common stock in ways with which other stockholders disagree.
As of March 14, 2017, Bradford T. Whitmore, together with his affiliates, Grace Brothers, Ltd. and Grace Investments, Ltd., beneficially owned
approximately 43% of the outstanding shares of our common stock. The current ownership position of Mr. Whitmore and his affiliates could delay, deter or
prevent a change of control or adversely affect the price that investors might be willing to pay in the future for shares of our common stock. The interests of Mr.
Whitmore and his affiliates may differ from the interests of our other stockholders and they may vote the common stock they beneficially own in ways with which
our other stockholders disagree. R. Janet Whitmore, one of our directors since 2003 and a stockholder, is the sister of Mr. Whitmore.
We have never paid dividends.
We currently intend to retain earnings, if any, to support our growth strategy. We do not anticipate paying dividends on our stock in the foreseeable future.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Additional sales, or the availability for sale, of substantial amounts of our common stock could adversely affect the value of our common stock.
No prediction can be made as to the effect, if any, that future sales of our common stock, or the availability of our common stock for future sales, will have
on the market price of our common stock. Sales of substantial amounts of our common stock in the public market and the availability of shares for future sale
could adversely affect the prevailing market price of our common stock. This in turn could impair our future ability to raise capital through an offering of our equity
securities.
There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
To the extent of our authorized but unissued shares pursuant to our certificate of incorporation, as amended, we are not restricted from issuing additional
shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The market
price of our common stock could decline as a result of future sales of our common stock or the perception that such sales could occur.
Provisions in our certificate of incorporation, our by-laws, and Delaware law could make it more difficult for a third party to acquire us, discourage a
takeover, and adversely affect existing stockholders.
Our certificate of incorporation, our by-laws and the Delaware General Corporation Law (the “DGCL”) contain provisions that may have the effect of making
more difficult, delaying or deterring attempts by others to obtain control of our Company, even when these attempts may be in the best interests of stockholders.
These include provisions on our maintaining a classified Board of Directors and limiting the stockholders’ powers to remove directors or take action by written
consent instead of at a stockholders’ meeting. Our certificate of incorporation also authorizes our Board of Directors, without stockholder approval, to issue one or
more series of preferred stock, which could have voting and conversion rights that adversely affect or dilute the voting power of the holders of common stock.
The DGCL also imposes conditions on certain business combination transactions with “interested stockholders.”
These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in our control or
management, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. These provisions
may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.
Failure to protect the integrity and security of individually identifiable data of our customers, vendors and employees could expose us to litigation
and damage our reputation.
We receive and maintain certain personal, sensitive and confidential information about our customers, vendors and employees. The collection and use of
this information is regulated at the international, federal and state levels, and is subject to certain contractual restrictions in third party contracts. Although we
have implemented processes to collect and protect the integrity and security of this personal information, there can be no assurance that this information will not
be obtained by unauthorized persons, or collected or used inappropriately. If our security and information systems or the systems of our employees or external
business associates are compromised or our employees or external business associates fail to comply with these laws and regulations and this information is
obtained by unauthorized persons, or collected or used inappropriately, it could negatively affect our reputation, as well as our operations and financial results,
and could result in litigation or regulatory action against us or the imposition of costs, fines or other penalties. While we have not experienced losses related to
this area, as privacy and information security laws and regulations change, we may incur additional costs to remain in compliance.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 1B. Unresolved Staff Comments
There are currently no open comments from the SEC Staff.
Item 2. Properties
We operate two facilities in the Chicago suburbs - a 36,000 square-foot production, research and headquarters facility in Romeoville, Illinois and a
20,000 square-foot production facility in Burr Ridge, Illinois. We also lease a 9,000 square-foot offsite warehouse in the vicinity of the Romeoville facility.
Our manufacturing operations in Burr Ridge are certified under ISO 9001:2008, and we believe that our manufacturing operations are within the cGMP
requirements of the FDA for products that require such compliance. Our facilities are also ISO 14001:2004 certified which is the international standard for
environmental management. The Burr Ridge facility has a quality control laboratory designed for the dual purposes of validating operations to cGMP and ISO
standards and production process control. This laboratory is equipped to handle many routine analytical and in-process techniques that are currently required.
The Romeoville facility houses our headquarters, advanced engineering, manufacturing (including nanoparticle coating, nanoparticle dispersion and pilot-
scale manufacturing) and research and development with three applications development laboratories. All Romeoville manufacturing processes are certified to
ISO 9001:2008 and ISO 14001:2004, and we believe that the manufacturing of nanoparticle coating used for sunscreens and personal care is in compliance with
the cGMP requirements of the FDA.
We lease our Romeoville and Burr Ridge facilities. During October 2016 we entered into an amendment to our Industrial Lease Agreement for the facility
in Romeoville, Illinois, which, among other things, extended the term of such lease through December 31, 2024. We renewed the Burr Ridge facility lease as of
September 2010, extending the terms through September 2014 (we subsequently exercised our final tenant option to extend the term through September
2017). On March 14, 2017, we entered into a new Building Lease for the Burr Ridge facility that will begin September 2017 and end during September 2021,
with our option to further extend this lease by three additional one-year periods. During 2016 we also renewed the lease for our offsite warehouse through
August 2019.
We believe that our leased facilities provide sufficient capacity to fulfill current known customer demand as well as allow for the creation of substantial
additional space to enable expansion of key production processes. We believe additional facilities could be obtained in the area at competitive prices if necessary
to support growth. We believe that our capital expenditures made in 2016, and projected for 2017, will support currently anticipated demand from existing
customers. Our actual future capacity requirements will depend on many factors, including new and potential customer acceptance of our current and potential
nanomaterials and product applications, both expected and currently unplanned growth from existing customers, continued progress in our research and
development activities and product testing programs and the magnitude of these activities and programs.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 3. Legal Proceedings
We are not a party to any pending legal proceedings or claims that we believe will result in a material adverse effect on our business, financial condition,
or operating results.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information; Holders; Dividends
PART II
Our common stock is traded on the OTCQB marketplace, operated by OTC Markets Group, since voluntarily delisting from the NASDAQ Capital Market
on March 20, 2012. Our symbol, “NANX”, did not change as a result of this venue transfer. The following table sets forth, for the periods indicated, the range of
high and low sale prices for our common stock on the OTCQB marketplace:
Fiscal year ended December 31, 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal year ended December 31, 2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
0.48 $
0.73
0.87
0.81
0.56 $
0.52
0.48
0.49
0.37
0.44
0.57
0.40
0.40
0.41
0.35
0.38
On March 14, 2017, the last reported sale price of our common stock was $0.70 per share, and there were 110 holders of record of our common stock.
We have never declared or paid any cash dividends on our common stock and do not currently anticipate paying any cash dividends or other
distributions on our common stock in the foreseeable future. We intend instead to retain any future earnings for reinvestment in our business. Any future
determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations,
capital requirements and such other factors deemed relevant by our Board of Directors.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Securities Authorized for Issuance under Equity Compensation Plan
The following table gives information about our common stock that may be issued upon the exercise of options and rights under our 2010 Equity
Compensation Plan (the “2010 Equity Plan”) on December 31, 2016. The 2010 Equity Plan replaced the 2004 Equity Compensation Plan (the “2004 Plan”), the
2005 Non-Employee Director Restricted Stock Plan (as amended, the “2005 Plan”), and the Amended and Restated 2006 Stock Appreciation Rights Plan (the
“2006 Plan”).
(a) Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(b) Weighted -
average exercise
price of
outstanding
options, warrants
and rights
(c) Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
3,027,000
None
$
$
0.81
—
1,196,000
None
Plan Category
Plans Approved by Shareholders
Plans Not Approved by Shareholders
Item 6. Selected Financial Data
Not required for a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with risks discussed in Part I, Item 1A, Risk Factors of this Form 10-K, and the
financial statements and related notes thereto appearing elsewhere in this Form 10-K. When used in the following discussions, the words “anticipates,”
“believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions are intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and contingencies that could cause actual results, performance or achievements to differ materially from those expressed in, or
implied by, such statements. See the “Forward Looking Statements” section in Part 1, Item 1, of this Form 10-K.
Overview
Nanophase is an advanced materials and applications developer and commercial manufacturer with an integrated family of materials technologies. We
produce engineered nano and sub-micron materials for use in a variety of diverse markets: personal care including sunscreens, architectural coatings, industrial
coating applications, abrasion-resistant additives, plastics additives, medical diagnostics, solar control/energy, and a variety of surface finishing technologies
(polishing) applications, including optics. Finally, we have expanded our offerings beyond active ingredients to include targeted full formulations of skin care
products, marketed and sold by our wholly-owned subsidiary, Solésence ™ LLC. We target markets in which we believe practical solutions may be found using
our products. We 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. 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, sub-micron 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 2017 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, during 2015 we were granted a patent on a new type
of particle surface treatment (coating), which became the cornerstone of our new product development in personal care, with first revenue recognized during
2016 and the creation of our Solésence ™ LLC subsidiary to manufacture and sell fully developed solutions to targeted customers in the skin care industry, in
addition to the additives we have traditionally sold in the personal care area. During 2015 and 2016 we developed and began to sell solutions in the energy
management (particularly solar control) industry. We believe that successful introduction of our materials with manufacturers may lead to follow-on orders for
other materials in their applications. We expect that we will both work more deeply with current customers and attract additional customers, which should help us
achieve growth in these markets in 2017 and beyond.
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Critical Accounting Estimates
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be
recoverable. We conduct long-lived asset impairment analyses in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 360-10-15, Impairment or Disposal of Long-Lived Assets . ASC 360-10-15 requires us to group assets and liabilities at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the
undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is
measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Certain assumptions are necessary to assess the impact of risks and uncertainties on the financial information, such as cash flow projections, availability
of capital if needed to support the ongoing operations of the business, and our expected compliance with contractual commitments. Any changes in those plans
or assumptions could have a material impact on our liquidity and financial condition.
Results of Operations
Years Ended December 31, 2016 and 2015
Total revenue increased to $10,783,000 in 2016, compared to $10,313,000 in 2015. A substantial majority of our revenue for each year is from our
largest customers, in particular sales to our largest customer in personal care and sunscreen applications. Product revenue, the primary component of our total
revenue, increased to $10,720,000 in 2016, compared to $10,272,000 in 2015. This increase was primarily due to increased revenue from our largest customer
(personal care). Revenue from our top three customers was approximately 69%, 5% and 4%, respectively, in 2016, compared to 63%, 4% and 7% for the same
customers in 2015.
Other revenue increased to $63,000 in 2016, compared to $41,000 in 2015. This increase primarily relates to customer-paid shipping charges, as that
and any customer-paid development projects are reflected in “other revenue.”
Cost of revenue generally include costs associated with commercial production and customer development arrangements. Cost of revenue increased to
$7,543,000 in 2016, compared to $7,199,000 in 2015. The increase in cost of revenue was primarily driven by the increase in product revenue volume, as our
annual gross margin was similar (approximately 30%) for each period. We expect to continue new nanomaterial development, primarily using our NanoArc®
synthesis and dispersion technologies, for targeted applications and new markets during 2017 and beyond. At current revenue levels we have generated a
positive gross margin, though margins have been impeded by not having enough revenue to efficiently absorb manufacturing overhead that is required to work
with current customers and expected future customers. We believe that our current fixed manufacturing cost structure is sufficient to support significantly higher
levels of production. The extent to which margins grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to
continue to cut costs and pass commodity market-driven raw materials increases on to customers. We expect that, as product revenue volume increases, our
fixed manufacturing costs would be more efficiently absorbed, leading 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 2017 and beyond, dependent upon the factors discussed above.
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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 coating formulations and the cost of enhancing our manufacturing
processes. As an example, we have been, and continue to be, engaged in research to enhance our ability to disperse material in a variety of organic and
inorganic media for use as coatings and polishing materials, including polishing products. Much of this work has led to several new products and additional
potential new products.
Having demonstrated the capability to produce pilot quantities of mixed-metal oxides in a single crystal phase, we do not expect development of further
variations on these materials to present material technological challenges. Many of these materials exhibit performance characteristics that can enable them to
serve in various catalytic applications. We are now working on several related commercial opportunities using the same materials. We expect that this technique
should enable us to scale to large quantity commercial volumes. We also have an ongoing advanced engineering effort that is focused on the development of
new nanomaterials as well as the refinement of existing nanomaterials, as dictated by our customer-driven marketing strategy. 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 increased to $1,554,000 in 2016, compared to $1,273,000 in 2015. The primary reasons for this increase were
salary, outside testing, and materials charges associated with the development and launch of our Solésence ™ line of personal care products and related
capabilities. We also had an increase in patent legal spending, in part related to additional surface treatment applications and in part related to solar control
applications. We expect similar spending in this area during 2017 as we continue with these efforts.
Selling, general and administrative expense decreased to $2,954,000 in 2016, compared to $3,019,000 in 2015. The net decrease was primarily
attributed to a (primary Romeoville facility) lease extension at a lower rate, partially offset by increased legal fees, and decreased consulting fees and marketing
and selling expenses related to the completed launch of our 2015 initiatives in surface finishing applications, and which are now again increasing as we launch
Solésence ™ personal-care type solutions. We expect 2017 expenses in this area to be approximately 5% higher and driven largely by the selling function as we
launch products in personal care, energy, and other areas, depending on the status of certain initiatives.
We had no interest income in either 2016 or 2015. Interest expense was $15,000 in 2016, compared to $14,000 in 2015, due to the impact of capital
leases on some of our equipment.
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 2017
and beyond if we are unable to pass through any increases under present contracts or through to our markets in general.
Liquidity and Capital Resources
Our cash, cash equivalents and short-term investments amounted to $1,779,000 as of December 31, 2016, compared to $1,275,000 on December 31,
2015. The net cash used in our operating activities for the year ended December 31, 2016 was $241,000 compared to $240,000 for the year ended December
31, 2015. Net cash used in investing activities amounted to $165,000 for the year ended December 31, 2016, compared to $288,000 for the year ended
December 31, 2015. Capital expenditures amounted to approximately $204,000 (including a new capital lease for $75,000) and $420,000 (including new capital
leases for $132,000) for the years ended December 31, 2016 and 2015, respectively. Net cash provided by financing activities was $910,000 in 2016, compared
to $59,000 used by financing activities in 2015. On February 10, 2016, we sold 2.6 million shares of our common stock to our largest investor for $988,000 in
proceeds. There were no placement agent or similar fees associated with this transaction. We have used, and expect to continue to use, the proceeds for
general corporate purposes. Additionally, on March 4, 2016, we extended the Line of Credit Agreement with Libertyville Bank and Trust, a Wintrust Community
Bank, until March 2017. During February 2017, we further extended this agreement until March 2018. No borrowings were outstanding on this line of credit as of
December 31, 2016.
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Our supply agreements with our largest customer, BASF, contain certain financial covenants which could potentially impact our liquidity. The most
restrictive financial covenants under these agreements require that we maintain a minimum of $1 million in cash, cash equivalents and certain investments, and
that we not have the acceleration of any debt maturity having a principal amount of more than $10 million, in order to avoid triggering the customer’s potential
right to transfer certain technology and equipment to that customer at a contractually defined price. We had approximately $1.8 million in cash on December 31,
2016, and no debt. This supply agreement and its covenants are more fully described in Note 12, and our line of credit is more fully described in Note 3, to our
Financial Statements referred to in Part II, Item 8, of this Annual Report on Form 10-K.
We believe that cash from operations and cash on hand, in addition to unused borrowing capacity, will be adequate to fund our operating plans through
2017. Our actual future capital requirements in 2017 and beyond will depend, however, on many factors, including customer acceptance of our current and
potential nanomaterials and product applications, 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 our materials and product
applications. 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, we expect that capital spending relating to currently
known capital needs for 2017 will be between $600,000 and $1,000,000, and further expect to enter into one or more financing leases to finance these
acquisitions. If those projects are delayed or ultimately prove unsuccessful, or if we fail to obtain financing on acceptable terms to us, we would expect our
capital expenditures may fall below the lower end of the range. Similarly, substantial success in business development projects may cause the actual 2017
capital investment to exceed the top of this range.
Should events arise that make it appropriate for us 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 existing
customers; currently unknown capital requirements in light of 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 to 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, may raise doubt as to our ability to continue as a going concern.
On December 31, 2016, we had a net operating loss carryforward of approximately $82 million for income tax purposes. Because the Company may
have experienced “ownership changes” within the meaning of the U.S. Internal Revenue Code in connection with its various prior equity offerings, future
utilization of this carryforward may be subject to certain limitations as defined by the Internal Revenue Code. If not utilized, the remaining carryforward will expire
at various dates between January 1, 2018 and December 31, 2036. As a result of the annual limitation and uncertainty as to the amount of future taxable income
that will be earned prior to the expiration of the carryforward, we have concluded that it is likely that some portion of this carryforward will expire before ultimately
becoming available to reduce income tax liabilities. Changes in Illinois state tax law that began during 2011 will impact net loss carryforward duration and
utilization on the state tax level.
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.
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As more fully described in Note 3 to our Financial Statements, referenced in Part II, Item 8 and set forth on page F-11 of this Form 10-K, during July
2014 we entered into a new bank-issued letter of credit and promissory note for up to $30,000 supporting our obligations under our facility lease agreement. No
borrowings have been incurred under this promissory note.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required for a smaller reporting company.
Item 8. Financial Statements and Supplementary Data
The financial statements, with the report of independent auditors, listed in Item 15 appear on pages F-1 through F-18 of this Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures . We are responsible for establishing and maintaining disclosure controls and procedures that are
designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is: (a) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal
executive and principal financial officers, to allow timely decisions regarding required disclosures. It should be noted that in designing and evaluating our
disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and that our management necessarily was required to apply its judgment regarding the design of our
disclosure controls and procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision (and with the
participation) of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective at reaching that level of reasonable assurance.
Management’s Annual Report on Internal Control Over Financial Reporting . Management is responsible for the preparation, integrity and fair presentation
of the financial statements and Notes to the financial statements. The financial statements were prepared in accordance with the accounting principles generally
accepted in the U.S. and include certain amounts based on management’s judgment and best estimates. Other financial information presented is consistent with
the financial statements.
Management is also responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed under the supervision of the Company’s
principal executive and principal financial officers in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting
includes those policies and procedures that:
(i)
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the
Company;
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(ii)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
(iii)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment,
management used the criteria established in Internal Control–Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of
December 31, 2016.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting. The Company’s management, including Mr. Jankowski, the CEO, and Mr. Cesario, the CFO,
confirms that there was no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2016 that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
DIRECTORS
Set forth below is certain information regarding the directors of the Company.
Name
James A. Henderson
James A. McClung, Ph.D.
R. Janet Whitmore
Jess A. Jankowski
Richard W. Siegel, Ph.D.
W. Ed Tyler
George A. Vincent, III
Age
82
79
62
51
79
64
72
Position with Company
Chairman of the Board of Directors
Director
Director
President, Chief Executive Officer
and Director
Director
Director
Director
Served as
Director
Since
2001
2000
2003
2009
1989
2011
2007
Term
Expires
2019
2019
2019
2017
2017
2017
2018
Class
I
I
I
II
II
II
III
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Mr. Henderson has served as a director of the Company since July 2001 and Chairman of the Board of Directors since August 2011. He retired as
Chairman and Chief Executive Officer of Cummins Engine Company (now Cummins Inc.) in December 1999, after joining the company in 1964. Mr. Henderson
became President and Chief Operating Officer of Cummins in 1977, was promoted to President and Chief Executive Officer in 1994 and served as Chairman
and Chief Executive Officer from 1995 until his retirement in 1999. Mr. Henderson attended Culver Military Academy, holds an A.B. in public and international
affairs from Princeton University and an M.B.A. from Harvard Business School. Mr. Henderson previously served as a director of AT&T, Inc., International Paper,
Rohm & Haas, Hillenbrand, Inc., Inland Steel, and Ryerson, Inc. He serves as Chairman Emeritus of the Board of the Culver Education Foundation and is a past
Chair of the Princeton University Board of Trustees. We believe that Mr. Henderson’s extensive and diverse background in corporate leadership in technology-
based companies, operations experience, and business acumen makes him a valuable member of our Board of Directors.
Mr. McClung has served as a director of the Company since February 2000, and is chair of the Audit and Finance Committee. Currently he is Chair and
CEO of Lismore International. He retired as a senior vice president and executive officer for FMC Corporation (which has since split into 3 public corporations:
FMC Corporation; TechnipFMC; JB Technologies), a leading producer of a diversified portfolio of chemicals and machinery. He has over 30 years of global
business development and operational experience in over 75 countries. This includes managing and developing new technologies and operational processes,
and strategic partnerships, for diversified global businesses, including specialized chemicals, process machinery, and health care systems while living in the
United States, Europe and Africa. In addition to serving currently on the Boards for Nanophase, 4 D Healthware, and the Nuseed advisory board, he previously
served on other corporate boards: Amway Corporation; NCCI; Turtle Wax; Beaulieu Corporation; and Hu-Friedy. He was a founding member of the US-Russia
Business Council and is active in other international business organizations, such as Japan American Society, Chicago Council on Global Affairs, Economic
Club of Chicago and the Executive Club of Chicago. He is an active Emeritus Trustee for the College of Wooster (Ohio). Mr. McClung earned a bachelor’s
degree from the College of Wooster (Ohio), master’s degree from the University of Kansas, and a doctorate from Michigan State University. We believe that Mr.
McClung’s extensive global business development and worldwide management experience, including experience in the specialty chemical industry, make him a
valuable member of our Board of Directors.
Ms. Whitmore joined the board in November 2003. She is a former director of Silverleaf Resorts, Inc., where she served as Chairman of the
Compensation Committee and as a member of the Audit Committee. She is also a former director of Epoch Biosciences, a supplier of proprietary products used
to accelerate genomic analysis. Ms. Whitmore is Founder of Benton Consulting, LLC, which specializes in business development and processes. From 1976
through 1999, Ms. Whitmore held numerous engineering and finance positions at Mobil Corporation, including Mobil’s Chief Financial Analyst and Controller of
Mobil’s Global Petrochemicals Division. Ms. Whitmore holds a B.S. degree in Chemical Engineering from Purdue University and an M.B.A. from Lewis
University. We believe that Ms. Whitmore’s combination of global financial, engineering, and management expertise makes her a valuable member of our Board
of Directors.
Mr. Jankowski joined the board in February 2009. He has served as the Company’s President and Chief Executive Officer since that time. After joining
the Company in 1995, Mr. Jankowski held offices including Vice President of Finance, Chief Financial Officer, Secretary, Treasurer and Controller. From 1990-
1995 he served as Controller for two building and public works contractors in the Chicago area, during which time he had significant business development
responsibilities. From 1986 to 1990, he worked for Kemper Financial Services in their accounting control corporate compliance unit, serving as unit supervisor
during his last two years. Mr. Jankowski holds a B.S. from Northern Illinois University and an M.B.A. from Loyola University. He served on the TechAmerica
Midwest Board from 2008 to 2012 and was an active member of the TechAmerica Midwest CFO Committee from 2006 through 2008. He was appointed to the
Advisory Board of the Nanobusiness Commercialization Association in 2009. Mr. Jankowski was also appointed to the Romeoville Economic Development
Commission and served from 2004 to 2010. He has also served on the advisory board of NITECH (Formerly WESTEC), an Illinois Technology Enterprise
Center focusing on the commercialization of advanced manufacturing technologies from 2003 to 2008. In 2009, Mr. Jankowski was appointed to the board of
directors of the Northern Illinois Technology Foundation, an economic development and technology transfer entity that is part of Northern Illinois University. We
believe that Mr. Jankowski’s long-term and intimate experience with Nanophase operations, along with his financial and management expertise, makes him a
valuable member of our Board of Directors.
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Dr. Siegel is a co-founder of the Company and has served as a director of the Company since 1989. Dr. Siegel served as a consultant to the Company
from 1990 to 2002 with regard to the application and commercialization of nanomaterials. Dr. Siegel is an internationally recognized scientist in the field of
nanomaterials. During his tenure on the research staff at Argonne National Laboratory from July 1974 to May 1995, he was the principal scientist engaged in
research with the laboratory-scale synthesis process that was the progenitor of the Company’s physical-vapor-synthesis production system. Dr. Siegel has been
the Robert W. Hunt Professor in Materials Science and Engineering at Rensselaer Polytechnic Institute since June 1995, and served as Department Head from
1995 to 2000. Dr. Siegel was the founding Director of both the Rensselaer Nanotechnology Center (2001-2015) and the U.S. National Science Foundation
funded Nanoscale Science and Engineering Center for Directed Assembly of Nanostructures (2001-2013). During the period from 1995 until 1998, he was also a
visiting professor at the Max Planck Institute for Microstructure Physics in Germany on an Alexander von Humboldt Research Prize received in 1994. During the
period from 2003 until 2004 he was a visiting professor in Japan on a RIKEN Eminent Scientist Award. He chaired the World Technology Evaluation Center
worldwide study of nanostructure science and technology for the U.S. government, has served on the Council of the Materials Research Society and as
Chairman of the International Committee on Nanostructured Materials. He also served on the Committee on Materials with Sub-Micron Sized Microstructures of
the National Materials Advisory Board and was the co-chairman of the Study Panel on Clusters and Cluster-Assembled Materials for the U.S. Department of
Energy. He served on the Nanotechnology Technical Advisory Group to the U.S. President’s Council of Advisors on Science and Technology during 2003-2009.
Dr. Siegel holds an A.B. degree in physics from Williams College and an M.S. degree and Ph.D. from the University of Illinois at Urbana-Champaign. We believe
that Dr. Siegel’s value to our Board of Directors, as co-founder of the Company and inventor of our initial base technology, is self-explanatory.
Mr. Tyler joined Nanophase as a director in January 2011. Mr. Tyler is Chairman of the Board of First Industrial Realty Trust, where he has served as a
director since 2000. He has also served in recent leadership positions at Ideapoint Ventures, an early stage venture fund that focuses on nanotechnologies, and
Industrial Nanotech, Inc., an entity which develops and sells nanomaterial solutions. Previously, Mr. Tyler served as President and CEO of Moore Corporation
Limited, a provider of data capture, information design, marketing services, digital communications and print solutions. Mr. Tyler also worked for 24 years with R.
R. Donnelley & Sons Company in Chicago, beginning his career as an electronics engineer and ultimately serving as Executive Vice President, Sector
President, and Chief Technology Officer. He also was responsible for 77 Capital, an early stage venture capital subsidiary of Donnelley, where he was directly
responsible for investment decisions and worked closely with the portfolio companies while participating on many of their boards. Mr. Tyler is a former Chairman
of the American Red Cross (Mid-America Chapter) and Campaign Chairman of the United Way of Lake County, and serves as a director for several small,
private companies. He is a member of the Board of Directors of Lake Forest Graduate School of Management, where he is also an adjunct faculty member. We
believe that Mr. Tyler’s extensive and diverse background in corporate leadership in technology-based companies, operations experience, and business acumen
makes him a valuable member of our Board of Directors.
Mr. Vincent has served as a director of the Company since November 2007. He is the retired Chairman and President of The HallStar Company, where
he served as CEO for twenty years. HallStar is a chemical manufacturer and innovator specializing in material science, marketing its products worldwide,
primarily into the polymer and personal care industries. Prior to HallStar, Mr. Vincent held positions in purchasing, sales, commercial development and strategic
planning with FMC Corporation (chemicals) and General Electric Company (chemicals and plastics). Mr. Vincent has served as Chairman of the Illinois
Manufacturers’ Association (IMA) and the Chemical Industry Council of Illinois (CICI), as well as Director of the American Chemistry Council (ACC). Mr. Vincent
serves on the Boards of several closely-held companies in the chemicals and materials industry sector. Mr. Vincent holds a Bachelor of Arts degree in Chemistry
from Dartmouth College and an M.B.A. degree from Harvard Business School. We believe that Mr. Vincent’s extensive experience in the chemicals industry and
management leadership makes him a valuable member of our Board of Directors.
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Meetings of the Board and Committees -- During the year ended December 31, 2016, the Board of Directors held five meetings. No director missed
more than one board or committee meeting held during 2016 (for all committees on which a particular director served).
Committees of the Board of Directors -- The Board of Directors has established an Audit and Finance Committee, Compensation Committee and
Nominating and Corporate Governance Committee. Each operates in accordance with its charter (available on our website www.nanophase.com under the
“Investor Relations” section). The members of the Audit and Finance Committee are Mr. McClung (Chairman), Mr. Vincent and Dr. Siegel. The members of the
Compensation Committee are Mr. Tyler (Chairman), Mr. Henderson, and Mr. Vincent. The members of the Nominating and Corporate Governance Committee
are Mr. Henderson (Chairman), Mr. McClung, Dr. Siegel, Mr. Vincent, Mr. Tyler and Ms. Whitmore.
The Audit and Finance Committee generally has responsibility for retaining the Company’s independent public auditors, reviewing the plan and scope of
the accountants’ annual audit, reviewing the Company’s internal control functions and financial management policies, reviewing and approving all related party
transactions, and reporting to the Board of Directors regarding all of the foregoing. The Audit and Finance Committee held eight meetings during 2016. The
Board of Directors has determined that Mr. Vincent and Mr. McClung are the “audit committee financial experts” as described in applicable SEC rules. Each
member of the Audit and Finance Committee is independent, as defined in applicable SEC rules.
The Compensation Committee generally has responsibility for establishing executive officer and key employee compensation, reviewing and establishing
the Company’s executive compensation, evaluating our Outside Director compensation, and reporting to the Board of Directors regarding the foregoing. The
Compensation Committee also has responsibility for administering the 2010 Equity Compensation Plan, as amended (the “2010 Equity Plan”), determining the
number of options, if any, to be granted to the Company’s employees and consultants pursuant to the 2010 Equity Plan and reporting to the Board of Directors
regarding the foregoing. Regarding most compensation matters, including executive compensation, our management provides recommendations to the
Compensation Committee; however, the Compensation Committee does not delegate any of its functions to others in setting compensation. The Compensation
Committee does not currently utilize external consultants in executive or director compensation matters. The Compensation Committee held five meetings during
2016. Each member of the Compensation Committee is independent, as defined in applicable SEC rules, is a “non-employee director” as defined in Rule 16b-3
under the Exchange Act and is an “Outside Director” as defined by the regulations under Section 162(m) of the Internal Revenue Code.
The Nominating and Corporate Governance Committee generally has responsibility for evaluating and nominating candidates to serve on the Board of
Directors, and for establishing and reviewing our Corporate Governance Principles. Five of the six members of the Nominating and Corporate Governance
Committee are independent, as defined in applicable SEC rules. The Nominating and Corporate Governance Committee held one meeting during 2016.
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The Board of Directors considers its role in risk oversight to focus primarily on evaluating risk at the entity and strategic levels, with management
primarily responsible for managing day-to-day risk factors and presenting summary materials for those positions to the Board of Directors. Consistent with this
philosophy, the Board of Directors has no formal policy as to whether the roles of Chief Executive Officer and Chairman should be segregated or combined. The
Board of Directors considers the circumstances of the Company and makes a determination as to the appropriate leadership structure for the Company at that
time. As of the time of this filing, the positions of CEO and Chairman are held by two individuals – Mr. Henderson serves as Chairman and Mr. Jankowski serves
as CEO. Mr. Henderson brings extensive experience in corporate leadership from his own working experience and from the many Boards on which he serves or
has served in the past, and Mr. Jankowski is expected to benefit from that experience. The Board of Directors believes that is the most appropriate structure for
the Company at this time. Under our Corporate Governance Principles, in the event that the Chairman of the Board is not an Outside Director, the Board will
elect a lead independent director, who will have the responsibility to schedule and prepare agendas for meetings of the Outside Directors, communicate with the
CEO, disseminate information to the rest of the Board and raise issues with management on behalf of the Outside Directors when appropriate. The Board
evaluates its leadership structure on an ongoing basis and may change it as circumstances warrant.
The Board of Directors does not have a stated policy regarding diversity, although pursuant to our Corporate Governance Principles, diversity is one
factor that the Nominating and Corporate Governance Committee considers when recommending directors for stockholder approval. The Board seeks
experienced individuals for service who bring extensive experience in leadership, operations, finance, and engineering, particularly in areas directly applicable to
the Company or its intended future endeavors.
Set forth below is certain information regarding the executive officers of the Company as of the date of this Form 10-K who are not identified above as
EXECUTIVE OFFICERS
directors.
Name
Frank Cesario
Kevin Cureton
Nancy Baldwin
Age
47
55
65
Position
Chief Financial Officer
Vice President – Sales, Marketing and Business Development
Vice President - Human Resources and Investor Relations
Mr. Cesario joined the Company in June 2009 as Chief Financial Officer. He brings more than 10 years of CFO and controller experience at
manufacturing entities. Prior to joining Nanophase, Mr. Cesario served in a similar capacity with ISCO International, Inc., a publicly traded global supplier of
telecommunications equipment, as well as Turf Ventures LLC, a privately held chemicals distributor. He began his career with KPMG Peat Marwick and then
served in progressively responsible finance positions within Material Sciences Corporation and Outokumpu Copper, Inc. Mr. Cesario holds an M.B.A. (Finance)
from DePaul University and a B.S. (Accountancy) from the University of Illinois, as well as being a registered CPA in the state of Illinois.
Mr. Cureton joined the Company in November 2012 as Vice President of Sales, Marketing and Business Development. His chemical industry
experience has spanned more than twenty years with companies including twelve years at AMCOL, where one of his roles was Managing Director of its
nanomaterial-based Health & Beauty Solutions division. Prior to that, he made significant contributions at Air Products, Borden, and other entities. He holds an
undergraduate degree in chemical engineering from Carnegie Mellon University and an M.B.A. from the University of Chicago.
Ms. Baldwin has served as the Director of Human Resources and Information Technology since joining the Company in 2000. In September of 2008,
she was appointed as the Company’s Vice President of Human Resources and Investor Relations. Prior to joining Nanophase, she served as Vice President of
iLink Global, and Chief Human Resources Officer at the Marketing Store, a global supplier to McDonald’s Corporation. Previous experience includes 14 years at
Arthur Andersen, LLP & Andersen Consulting, LLP in various positions. Ms. Baldwin has a B.S. in Education from Western Illinois University and post graduate
studies at Northern Illinois University. In 2010, Ms. Baldwin was appointed to the Romeoville Economic Development Commission. She is currently an active
member of the Will County Three Rivers Manufacturing Human Resources Association.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Board of Directors elects executive officers and such executive officers, subject to the terms of their employment agreements, serve at the discretion
of the Board of Directors. Messrs. Jankowski, Cesario, and Cureton, and Ms. Baldwin, each have employment agreements with the Company. See Item 11
below. There are no family relationships among any of the directors or officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company’s officers (as defined under Section 16), directors and persons who beneficially own greater than
10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Based solely on a review of the forms we
have received and on written representations from certain reporting persons that no such forms were required for them, we believe that during 2016 all Section
16 filing requirements applicable to our officers, directors and 10% beneficial owners were complied with by such persons except for the following forms, which
were filed late: a Form 4 filing reporting a purchase of 27 shares of stock by Mr. Henderson on February 27, 2015, a Form 4 filing reporting the purchase of
15,523 shares of stock between February 29, 2016 and March 7, 2016 were reported March 10, 2016, and a Form 4 filing reporting an option exercise and the
acquisition of the underlying 44,500 shares of stock by Mr. Henderson on September 22, 2016.
CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to, among others, our principal executive officer, principal
financial officer and principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is posted on our Internet website
www.nanophase.com under the “Investor Relations” section. In the event that we make any amendment to, or grant any waiver from, a provision of the Code of
Ethics that requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver on our website.
Item 11. Executive Compensation
Compliance with Section 162(m)
The Compensation Committee currently intends for all compensation paid to the executive officers to be tax deductible to the Company pursuant to
Section 162(m) of the Internal Revenue Code (“Section 162(m)”). Section 162(m) provides that compensation paid to the executive officers in excess of
$1,000,000 cannot be deducted by the Company for Federal income tax purposes unless, in general, (1) such compensation is performance-based, established
by a committee of Outside Directors and objective, and (2) the plan or agreement providing for such performance-based compensation has been approved in
advance by stockholders. The Compensation Committee may determine to adopt a compensation program that does not satisfy the conditions of Section 162(m)
if in its judgment, after considering the additional costs of not satisfying Section 162(m), it deems such program to be appropriate.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation for each of our named executive officers in U.S. dollars for the years ended December 31,
2016 and 2015.
Name and Principal Position
Jess Jankowski
Chief Executive Officer
Frank Cesario
Chief Financial Officer
Kevin Cureton
Vice President Sales, Marketing, Business Development
Nancy Baldwin
Vice President Human Resources and Investor Relations
Year
2016
2015
2016
2015
2016
2015
2016
2015
$
$
$
$
$
$
$
$
Salary
($)
Bonus
($)
(1)
Option Awards
($)
(2)
Non-Equity
Incentive Plan
Compensation ($)
(3)
All Other
Compensation ($)
(4)
Total ($)
305,831
316,371
169,834
175,520
186,411
188,850
166,686
172,626
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
23,247
28,928
10,613
12,859
14,656
17,857
10,613
12,859
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
22,960
21,910
1,224
1,224
23,666
24,094
9,348
8,884
$
$
$
$
$
$
$
$
352,038
367,209
181,671
189,603
224,733
230,801
186,647
194,369
(1)
(2)
(3)
(4)
Any amounts earned during 2016 and 2015 would have been paid in early 2017 and 2016, respectively. Bonus compensation is driven by Company
performance against its goals as ultimately determined by the Compensation Committee of the Board of Directors. A set of Company-level objectives is
created at the beginning of the year, focusing on total revenue, revenue growth, particular sources of revenue growth, business development
achievements, cash flows and related targets, as well as a small discretionary component designed to capture items not specifically listed. Each
measure has varying levels of achievement, which is reflected in the aggregate bonus measurement. The resulting bonus calculation is then applied to
each individual’s bonus potential as a percentage of salary. Because total revenue growth was approximately 4% during 2016 and 2015, performance
targets were not met and thus no bonus was awarded to any of the named executive officers for 2016 or 2015.
The amounts in this column represent the aggregate fair value of awards granted in 2016 and 2015 fiscal years in accordance with FASB ASC Topic
718. See Note 10 of the notes to our financial statements contained elsewhere in this Form 10-K for a discussion of all assumptions made by us in
determining the FASB ASC Topic 718 values.
None.
The amounts in this column represent 401(k) match (none during 2016 and 2015), health and life insurance. Health insurance benefits are the same for
all employees. Life insurance is provided in the amount of one times the annual base salary with a maximum of $150,000.
Employment Agreements
Effective as of August 12, 2009, we entered into an employment agreement with Jess Jankowski in connection with his services as President and Chief
Executive Officer. No term has been assigned to Mr. Jankowski’s employment agreement.
Pursuant to the terms of his employment agreement, Mr. Jankowski will receive an annual base salary of not less than $275,000. In addition, Mr.
Jankowski will be eligible for discretionary bonuses for services to be performed as an executive officer of the Company based on performance and achieving
milestones approved by our Board of Directors (the “Board”).
Mr. Jankowski will be eligible for such stock options and other equity compensation as the Board deems appropriate, subject to the provisions of the
2010 Equity Plan. Mr. Jankowski will also be entitled to the employee benefits made available by us generally to all of our other executive officers, subject to the
terms and conditions of our employee benefit plan in effect from time to time.
In the event Mr. Jankowski’s employment is terminated other than for “cause” (as such term is defined in the employment agreement), Mr. Jankowski will
receive a sum equal to Mr. Jankowski’s base salary in effect at the time of termination for 52 full weeks after the effective date of termination, payable in
proportionate amounts on our regular pay cycle for professional employees, provided that Mr. Jankowski signs, without subsequent revocation, a separation
agreement and release in a form acceptable to us. In addition, all stock options granted to Mr. Jankowski prior to termination will become fully vested and
exercisable in accordance with the applicable option grant agreement and the 2010 Equity Plan. If he is terminated for cause, or if he resigns as an employee of
the Company, Mr. Jankowski will not be entitled to any severance or other benefits accruing after the term of the employment agreement and such rights will be
forfeited immediately upon the end of such term.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
If, within two years after the occurrence of a change in control, as defined in his employment agreement, Mr. Jankowski’s employment is terminated
other than for cause, his responsibilities or annual compensation are materially reduced without his prior consent, or we cease to be publicly held (each, a
“Trigger”), then, subject to Mr. Jankowski signing, without subsequently revoking, a separation agreement and release in a form acceptable to us, Mr. Jankowski
will receive a sum equal to his base salary for 104 full weeks after the date the Trigger occurs. In addition, all stock options granted to Mr. Jankowski prior to the
Trigger will become fully vested and exercisable in accordance with the applicable option grant agreement and the 2010 Equity Plan.
Effective as of June 24, 2009, we entered into an employment agreement with Mr. Frank Cesario providing for an annual base salary of not less than
$150,000. We also granted to Mr. Cesario options to purchase up to 20,000 shares of common stock at an exercise price of $1.07 per share with options for one-
third of such shares becoming exercisable on each of the first three anniversaries of the date of grant. No term has been assigned to Mr. Cesario’s employment
agreement. As subsequently amended during 2012, if Mr. Cesario is terminated other than for “cause” (as such term is defined in Mr. Cesario’s employment
agreement), Mr. Cesario will receive severance benefits in an amount equal to Mr. Cesario’s base salary for 26 weeks.
Effective as of November 28, 2012, we entered into an employment agreement with Mr. Kevin Cureton providing for an annual base salary of not less
than $190,000. No term has been assigned to Mr. Cureton’s employment agreement. If Mr. Cureton is terminated other than for “cause” (as such term is defined
in Mr. Cureton’s employment agreement), Mr. Cureton will receive severance benefits in an amount equal to Mr. Cureton’s base salary for 26 weeks. In addition,
all stock options granted to Mr. Cureton prior to termination will become fully vested and exercisable in connection with the applicable option grant agreement
and the 2010 Equity Plan. A signing bonus of $25,000 was paid upon Mr. Cureton’s acceptance of employment.
Effective as of September 25, 2008, we entered into an employment agreement with Ms. Nancy Baldwin providing for an annual base salary of not less
than $150,000. No term has been assigned to Ms. Baldwin’s employment agreement. If Ms. Baldwin is terminated other than for “cause” (as such term is defined
in Ms. Baldwin’s employment agreement), Ms. Baldwin will receive severance benefits in an amount equal to Ms. Baldwin’s base salary for 26 weeks. In
addition, all stock options granted to Ms. Baldwin prior to termination will become fully vested and exercisable in connection with the applicable option grant
agreement and the 2010 Equity Plan.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following table sets forth information regarding each unexercised option held by each of our named executive officers as of December 31, 2016.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
NAME
Jess Jankowski
Frank Cesario
Kevin Cureton
Nancy Baldwin
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
EXERCISABLE
OPTION AWARDS
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
(#)
UNEXERCISABLE
OPTION
EXERCISE
PRICE
($)
18,000
23,000
30,000
27,000
85,000
98,000
90,000
60,000
27,000
-0-
20,000
20,000
31,000
13,667
13,000
26,667
12,000
-0-
52,000
48,000
50,000
16,667
-0-
9,000
15,000
30,000
27,000
31,000
41,000
39,000
26,667
12,000
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
30,000(1)
54,000(2)
69,000(3)
-0-
-0-
-0-
-0-
-0-
13,333(1)
24,000(2)
31,500(3)
-0-
-0-
25,000(1)
33,333(2)
43,500(3)
-0-
-0-
-0-
-0-
-0-
-0-
-0-
13,333(1)
24,000(2)
31,500(3)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4.480
3.140
1.020
1.700
1.260
0.300
0.415
0.520
0.440
0.420
1.070
1.700
1.260
0.300
0.415
0.520
0.440
0.420
0.300
0.415
0.520
0.440
0.420
4.480
3.140
1.020
1.700
1.260
0.300
0.415
0.520
0.440
0.420
OPTION
EXPIRATION
DATE
11/06/17
05/12/18
05/04/19
05/03/20
05/02/21
08/07/22
02/14/23
02/13/24
02/18/25
02/23/26
06/24/19
05/03/20
05/02/21
08/07/22
02/14/23
02/13/24
02/18/25
02/23/26
11/28/22
02/14/23
02/13/24
02/18/25
02/23/26
11/06/17
05/12/18
05/04/19
05/03/20
05/02/21
08/07/22
02/14/23
02/13/24
02/18/25
02/23/26
STOCK AWARDS
NUMBER
OF SHARES OF
STOCK
THAT HAVE NOT
VESTED
(#)
MARKET VALUE
OF SHARES OF
STOCK
THAT HAVE NOT
VESTED
($)
—
—
—
—
—
—
—
—
—
(1) The grants expiring February 13, 2024 vested in three equal installments on February 13, 2015, 2016 and 2017.
(2) The grants expiring February 18, 2025 vest in three equal installments on February 18, 2016, 2017 and 2018.
(3) The grants expiring February 23, 2026 vest in three equal installments on February 23, 2017, 2018 and 2019.
POTENTIAL PAYMENT UPON TERMINATION OR CHANGE IN CONTROL
Severance Benefits. Please see discussion of severance benefits under “Employment Agreements” above.
Change in Control. Upon a change in control, the 2010 Equity Plan provides that: (1) vesting under all outstanding stock options will automatically
accelerate and each option will become fully exercisable; (2) the restrictions and conditions on all outstanding restricted shares shall immediately lapse; and (3)
the holders of performance shares will receive a payment in settlement of the performance shares, in an amount determined by the Compensation Committee,
based on the target payment for the performance period and the portion of the performance period that precedes the change in control. If the Company is not
the surviving entity, the successor is required to assume all unexercised options.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Payments. The following table quantifies the estimated payments that would be made in each covered circumstance to our named executive officers:
NAME
Jess Jankowski
Frank Cesario
Kevin Cureton
Nancy Baldwin
TERMINATION BY COMPANY
WITHOUT CAUSE (1)
CHANGE IN CONTROL (2)
INVOLUNTARY TERMINATION IN
CONNECTION WITH OR FOLLOWING
A CHANGE IN CONTROL (3)
$
$
$
$
341,820
85,200
125,633
104,037
$
$
$
$
41,820
18,837
27,383
18,837
$
$
$
$
661,820
104,037
125,633
104,037
(1)
(2)
(3)
This amount represents the severance benefits that would be received under the executive officer’s employment agreement as described had the
executive officer been terminated by the Company without cause on December 31, 2016, including the value of any stock options that would have
accelerated in connection with such termination. For this purpose, the closing price of our common stock as of December 30, 2016, the last
business day of 2016, was used. The amount represents the difference between the exercise price of any unvested options and $0.72.
This amount represents an estimate of the value that would have been received under the equity compensation plans had a change in control
occurred as of December 31, 2016 and the executive officers benefited from an acceleration of vesting in the equity-based plan awards, as
described above. For this purpose, the closing price of our common stock as of December 30, 2016, the last business day of 2016, was used. The
amount represents the difference between the exercise price of any unvested options and $0.72.
This amount represents an estimate of the payments and value (including acceleration of vesting of equity-based awards) that would have been
received by the executive officers had the executive officers been terminated by the Company without cause on December 31, 2016 in connection
with a change in control on this date. For this purpose, the closing price of our common stock as of December 30, 2016, the last business day of
2016, was used. The amount represents the difference between the exercise price of any unvested options and $0.72.
DIRECTOR COMPENSATION
Upon first being elected to the Board of Directors, each director of the Company who is not an employee or consultant of the Company (an “Outside
Director”) is granted stock options to purchase shares of common stock at the closing price as of the date of issuance (the fair market value). This initial option
grant to an Outside Director typically vests over three years, though may accelerate upon termination from the Board of Directors.
In 2016, we paid quarterly compensation to the Chairman of the Board of Directors, for an annual rate of $22,000. We paid quarterly compensation to
the Chairman of the Audit and Finance Committee and to the Chairman of the Compensation Committee totaling $18,000 to each. Each of our other Outside
Directors was paid quarterly compensation for an annual total of $16,000 per Outside Director for services performed in their capacity as a director.
Prior to 2011, we granted our Outside Directors stock appreciation rights (SARs) totaling 106,750 shares, under our Amended and Restated 2006 Stock
Appreciation Rights Plan and subsequently under the 2010 Equity Plan. No SARs were granted during 2016 or 2015. The SARs granted vested immediately and
were payable upon the directors’ termination from the position of director. During November 2016, we terminated this program and cancelled all vested awards.
At the same time, we issued the Outside Directors who had vested SARs cancelled an identical number of options, fully vested on the date of grant, at strike
prices identical to the comparable SARs values, which strike prices were all in excess of the closing price of our common stock on this date of grant.
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During the first quarter of 2016, we granted our Outside Directors stock options totaling 55,890 shares under the 2010 Equity Plan, as follows: the
Chairman of the Board of Directors received stock options to purchase 12,150 shares of our common stock, the Chairman of the Audit and Finance Committee
and the Chairman of the Compensation Committee each received stock options to purchase 9,720 shares of our common stock and each of our other Outside
Directors received stock options to purchase 8,100 shares of our common stock. Our Outside Directors had the following shares of our common stock underlying
stock options (both vested and unvested) outstanding as of December 31, 2016: Mr. Henderson: 50,150 shares; Mr. McClung: 84,270 shares; Mr. Vincent:
86,850 shares; Ms. Whitmore: 71,100 shares; Dr. Siegel: 71,100 shares; and Mr. Tyler: 64,520 shares.
In 2015, we paid quarterly compensation to the Chairman of the Board of Directors, for an annual rate of $22,000. We paid quarterly compensation to
the Chairman of the Audit and Finance Committee and to the Chairman of the Compensation Committee totaling $18,000 to each. Each of our other Outside
Directors was paid quarterly compensation for an annual total of $16,000 per Outside Director for services performed in their capacity as a director.
In 2005, we adopted, and our stockholders approved, the 2005 Non-Employee Director Restricted Stock Plan (the “Director Restricted Stock Plan”)
which reserved 150,000 shares of our common stock to be issued to Outside Directors in the form of restricted shares. In 2005, no awards were made under the
Director Restricted Stock Plan. In 2005, we also adopted the Non-Employee Director Deferred Compensation Plan (the “Director Deferred Compensation Plan”)
which permits an Outside Director to defer the receipt of director fees until separation from service or the Company undergoes a change in control. We
amended the Director Restricted Stock Plan in 2005 to permit an Outside Director to defer receipt of restricted stock granted under it. The deferred restricted
shares are accounted for under the Director Deferred Compensation Plan and issued upon separation from service or the Company’s change in control. Under
the Director Deferred Compensation Plan, the deferred fees that would have been paid in cash are deemed invested in 5 year U.S. Treasury Bonds during the
deferral period. The accumulated hypothetical earnings are paid following the Outside Director’s separation from service or the Company’s change in control.
The deferred fees that would have been paid as restricted shares are deemed invested in our common stock during the deferral period. The Director Deferred
Compensation Plan is an unfunded, nonqualified deferred compensation arrangement. In 2009, all Outside Directors elected to defer receipts of all of the
restricted shares they became entitled to under the Director Restricted Stock Plan, which was consolidated into the 2010 Equity Plan.
All Outside Directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending board and committee meetings.
2016 Outside Director Compensation
Name
James A. Henderson
James A. McClung
W. Ed Tyler
R. Janet Whitmore
George A. Vincent, III
Dr. Richard Siegel
Fees Earned
or Paid in
Cash
($)
Option
Awards
($) (1)
Stock
Appreciation
Rights
($)
$
$
$
$
$
$
22,000 $
18,000 $
18,000 $
16,000 $
16,000 $
16,000 $
11,467
11,570
3,275
10,102
11,024
10,102
— $
— $
— $
— $
— $
— $
Total($)
33,467
29,570
21,275
26,102
27,024
26,102
(1) The amounts in this column represent the aggregate fair value of awards granted in fiscal 2016 in accordance with FASB ASC Topic 718.
See Note 10 of the notes to our financial statements contained elsewhere in this Form 10-K for a discussion of all assumptions made by us
in determining the FASB ASC Topic 718 values.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 14, 2017 certain information with respect to the beneficial ownership of our common stock by (1) each person
known by us to own beneficially more than 5% of the outstanding shares of common stock, (2) each of our directors, (3) each of our named executive officers and
(4) all of our executive officers and directors as a group.
Name
Bradford T. Whitmore
Spurgeon Corporation
Grace Brothers, Ltd.
John H. Conley, Jr.
James A. Henderson
Richard W. Siegel, Ph.D.
James A. McClung
W. Ed Tyler
R. Janet Whitmore
George A. Vincent, III
Jess A. Jankowski
Kevin Cureton
Nancy Baldwin
Frank J. Cesario
All current executive officers and directors as a group (10 persons)
Number of
Shares
Beneficially
Owned (1)
Percent of
Shares
Beneficially
Owned
13,493,599(2)
3,034,710(3)
2,433,300(4)
2,140,650(5)
519,665(6)
452,538(7)
121,843(8)
54,440(9)
1,407,158(10)
78,450(11)
577,801(12)
222,833(13)
267,487(14)
255,950(15)
3,958,165(16)
43.2%
9.7%
7.8%
6.9%
1.7%
1.4%
*
*
4.5%
*
1.8%
*
*
*
12.0%
Unless otherwise indicated below, the person’s address is the same as the address for the Company.
*Denotes beneficial ownership of less than one percent.
(1)
(2)
(3)
Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
Includes 2,433,300 shares of common stock held by Grace Brothers, Ltd., 601,410 shares of common stock held by Grace Investments, Ltd. and
10,407,435 shares held by Bradford T. Whitmore, as well as 51,454 shares held by his daughter. Mr. Whitmore is a general partner of both Grace
entities. In such capacities, Mr. Whitmore shares voting and investment power with respect to the shares of common stock held by the Grace entities.
This information is based on information reported on a Form 5 filed on January 11, 2017 with the SEC. The address of the stockholder is 1603 Orrington
Avenue, Suite 900, Evanston, Illinois 60201.
Includes 2,433,300 shares of common stock held by Grace Brothers, Ltd. and 601,410 shares of common stock held by Grace Investments, Ltd.
Spurgeon Corporation is a general partner of both Grace entities and shares voting and investment power with respect to the shares of common stock
held by such Grace entities. This information is based on information reported on the Form 5 referenced above. The address of the stockholder is 1603
Orrington Avenue, Suite 900, Evanston, Illinois 60201.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(4)
(5)
(6)
(7)
(8)
This information is based on information reported on the Form 5 referenced above. The address of the stockholder is 1603 Orrington Avenue, Suite 900,
Evanston, Illinois 60201.
This information is based on information reported on Schedule 13G/A filed with the SEC on January 5, 2017. The address of the stockholder is 8 Rene
Carr Street, Elkton, Maryland 21921.
Includes Mr. Henderson’s 37,550 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
Includes Dr. Siegel’s 62,700 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
Includes Mr. McClung’s 74,190 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017, as
well as 30,071 shares held by his spouse.
(9)
Includes Mr. Tyler’s 54,440 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
(10)
Includes Ms. Whitmore’s 62,700 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017,
as well as 238,493 shares held by her children.
(11)
Includes Mr. Vincent’s 78,450 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
(12)
Includes Mr. Jankowski’s 538,000 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017,
as well as 1,000 shares held by his spouse.
(13)
Includes Mr. Cureton’s 222,833 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
(14)
Includes Ms. Baldwin’s 266,500 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
(15)
Includes Mr. Cesario’s 172,167 shares of common stock issuable upon exercise of options exercisable currently or within 60 days of March 14, 2017.
(16)
Includes all executive officers and directors as a group’s 1,569,530 shares of common stock issuable upon exercise of options exercisable currently or
within 60 days of March 14, 2017.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Under our Audit and Finance Committee’s charter, the Audit and Finance Committee must review and approve all related person transactions in which
any executive officer, director, director nominee or more than 5% stockholder, or any of their immediate family members, has a direct or indirect material interest.
The Audit and Finance Committee may not approve a related person transaction unless it is in, or not inconsistent with, our best interests and, where applicable,
the terms of such transaction are at least as favorable to us as could be obtained from an unrelated third party.
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We did not engage in any transactions in which a related person had or will have a direct or indirect material interest during 2016 or 2015, except for the
February 2016 sale of 2.6 million shares of our common stock to our largest shareholder, Bradford T. Whitmore, at a price of $0.38 per share, for proceeds of
$988,000, which was reviewed and approved in advance by our Audit and Finance Committee pursuant to the parameters described above. No related party
transactions are currently contemplated.
Director Independence. The Board of Directors has determined that the following directors are “independent” as that term is defined in the rules and
regulations of the SEC and the NASDAQ Stock Market: Mr. McClung, Mr. Henderson, Dr. Siegel, Mr. Tyler and Mr. Vincent. Though we are no longer listed on
NASDAQ, our Board of Directors used the NASDAQ listing standards in making its independence determinations.
The Board of Directors has established an Audit and Finance Committee, Compensation Committee and Nominating and Corporate Governance
Committee. The members of the Audit and Finance Committee are Mr. McClung (Chairman), Mr. Vincent, and Dr. Siegel. The members of the Compensation
Committee are Mr. Tyler (Chairman), Mr. Henderson, and Mr. Vincent. The members of the Nominating and Corporate Governance Committee are Mr.
Henderson (Chairman), Mr. McClung, Dr. Siegel, Mr. Vincent, Mr. Tyler and Ms. Whitmore.
Item 14. Principal Accountant Fees and Services
Audit Fees. The aggregate amount billed by our principal accountant, RSM US LLP (“RSM”), for audit services performed for the fiscal years ended
December 31, 2016 and 2015 was approximately $142,000 and $158,000, respectively. Audit services include the auditing of financial statements and quarterly
reviews.
Audit Related Fees. There were no audit related fees billed by RSM for the years ended December 31, 2016 and 2015, which may include costs incurred
for reviews of registration statements, assistance with Staff comment letters, and consultation on various accounting matters in support of our financial
statements.
Tax Fees. There were no fees billed by our principal accountant for tax related services for the fiscal years ended December 31, 2016 and 2015.
All Other Fees. Other than those fees described above, during the fiscal years ended December 31, 2016 and 2015, there were no other fees billed for
services performed by our principal accountant.
All of the fees described above were approved by our Audit and Finance Committee.
Audit and Finance Committee Pre-Approval Policies and Procedures . Our Audit and Finance Committee pre-approves the audit and non-audit services
performed by RSM, our principal accountants, in order to assure that the provision of such services does not impair RSM’s independence. Unless a type of
service to be provided by RSM has received general pre-approval, it will require specific pre-approval by the Audit and Finance Committee. In addition, any
proposed services exceeding pre-approval cost levels or budgeted amounts will require specific pre-approval by the Audit and Finance Committee.
The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit and Finance Committee specifically provides for a different
period. The Audit and Finance Committee will periodically revise the list of pre-approved services, based on subsequent determinations, and has delegated pre-
approval authority to the Chairman of the Audit and Finance Committee. In the event the Chairman exercises such delegated authority, he shall report such pre-
approval decisions to the Audit and Finance Committee at its next scheduled meeting. The Audit and Finance Committee does not delegate its responsibilities to
pre-approve services performed by the independent auditor to management.
38
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Form 10-K:
PART IV
1.
The following financial statements of the Company, with the report of independent registered public accounting firm, are filed as part of this
Form 10-K:
Report of RSM US LLP, Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2016 and 2015
Statements of Operations for the Years Ended December 31, 2016 and 2015
Statements of Stockholders’ Equity for the Years Ended December 31, 2016 and 2015
Statements of Cash Flows for the Years Ended December 31, 2016 and 2015
Notes to Financial Statements
2.
A list of exhibits required to be filed as part of this Form 10-K is set forth in the Exhibit Index beginning on page E-1 of this Form 10-K, which
immediately precedes such exhibits, and is incorporated herein by reference.
Item 16. Form 10-K Summary
NONE.
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NANOPHASE TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of RSM US LLP, Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2016 and 2015
Statements of Operations for the years ended December 31, 2016 and 2015
Statements of Stockholders’ Equity for the years ended December 31, 2016 and 2015
Statements of Cash Flows for the years ended December 31, 2016 and 2015
Notes to the Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Nanophase Technologies Corporation
We have audited the accompanying balance sheets of Nanophase Technologies Corporation as of December 31, 2016 and 2015, and the related statements of
operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nanophase Technologies Corporation as
of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ RSM US LLP
Schaumburg, Illinois
March 29, 2017
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NANOPHASE TECHNOLOGIES CORPORATION
BALANCE SHEETS
(in thousands except share and per share data)
As of December 31,
2016
2015
Current assets:
Cash and cash equivalents
Trade accounts receivable, less allowance for doubtful accounts of $5 and $6 on December 31, 2016
ASSETS
and 2015, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Equipment and leasehold improvements, net
Other assets, net
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations
Accounts payable
Accrued expenses
Total current liabilities
Long-term portion of capital lease obligations
Long-term deferred rent
Asset retirement obligations
Total long-term liabilities
Contingent liabilities
Stockholders’ equity:
Preferred stock, $.01 par value, 24,088 shares authorized and no shares issued and outstanding
Common stock, $.01 par value, 42,000,000 and 35,000,000 shares authorized; 31,229,996 and
28,585,496 shares issued and outstanding on December 31, 2016 and December 31, 2015,
respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
$
$
$
$
1,779
$
$
$
434
772
442
3,427
1,395
20
4,842
107
669
521
1,297
110
466
178
754
—
—
1,275
507
662
247
2,691
1,861
22
4,574
94
508
276
878
144
519
172
835
—
—
312
97,359
(94,880)
2,791
4,842
$
286
96,172
(93,597)
2,861
4,574
(See accompanying Notes to Financial Statements)
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
(in thousands except share and per share
data)
Years ended December 31,
2016
2015
$
$
$
10,720
63
10,783
7,543
3,240
1,554
2,954
(1,268)
—
(15)
—
(1,283)
—
(1,283)
(0.04)
$
10,272
41
10,313
7,199
3,114
1,273
3,019
(1,178)
—
(14)
—
(1,192)
—
(1,192)
(0.04)
Revenue:
Product revenue
Other revenue
Total revenue
Operating expense:
Cost of revenue
Gross profit
Research and development expense
Selling, general and administrative expense
Loss from operations
Interest income
Interest expense
Other, net
Loss before provision for income taxes
Provision for income taxes
Net loss
Net loss per share-basic and diluted
Weighted average number of basic and diluted common shares outstanding
30,911,869
28,574,902
(See accompanying Notes to Financial Statements)
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands except share data)
Description
Shares
Amount
Shares
Amount
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Balance on December
31, 2014
Stock option exercises
Stock-based
compensation
Net loss for the year
ended December 31,
2015
Balance on December
31, 2015
Sale of common stock
Stock option exercises
Stock-based
compensation
Net loss for the year
ended December 31,
2016
Balance on December
31, 2016
—
$
—
28,516,163
$
285
$
95,966
$
(92,405)
$
3,846
—
—
—
—
—
—
69,333
—
—
1
—
—
25
181
—
—
26
181
—
(1,192)
(1,192)
—
$
—
28,585,496
$
286
$
96,172
$
(93,597)
$
2,861
—
—
—
—
—
—
—
—
2,600,000
44,500
—
—
26
—
—
—
962
18
207
—
—
—
988
18
207
—
(1,283)
(1,283)
—
$
—
31,229,996
$
312
$
97,359
$
(94,880)
$
2,791
(See accompanying Notes to Financial Statements)
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
Operating activities:
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization
Impairment of fixed asset
Share-based compensation
Changes in assets and liabilities related to operations:
Trade accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Net cash used in operating activities
Investing activities:
Acquisition of equipment and leasehold improvements
Payment of accounts payable incurred for the purchase of equipment and leasehold improvements
Net cash used in investing activities
Financing activities:
Principal payment on capital leases
Proceeds from sale of common stock
Proceeds from exercise of stock options
Net cash provided by (used in) financing activities
Increase/(Decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow information:
Interest paid
Supplemental non-cash investing and financing activities:
Accounts payable incurred for the purchase of equipment and leasehold improvements
Capital lease obligations incurred in the purchase of equipment
(See accompanying Notes to Financial Statements)
F-6
(in thousands)
Years ended December 31,
2015
2016
$
(1,283)
(1,192)
610
54
207
73
(110)
(194)
161
241
(241)
(128)
(37)
(165)
(96)
988
18
910
504
1,275
1,779
$
15
$
—
75
$
$
735
—
182
(119)
288
120
(14)
(240)
(240)
(280)
(8)
(288)
(85)
—
26
(59)
(587)
1,862
1,275
14
37
132
$
$
$
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data or as otherwise noted herein)
(1)
Description of Business
Nanophase Technologies Corporation (“Nanophase”, “Company”, “we”, “our”, or “us”) is an advanced materials and applications developer and
commercial manufacturer with an integrated family of nanomaterial and related technologies. We produce engineered nano and larger, sub-micron, materials for
use in a variety of diverse markets: personal care including sunscreens, architectural coatings, industrial coating applications, abrasion-resistant additives,
plastics additives, medical diagnostics, energy, and a variety of surface finishing technologies (polishing) applications, including optics. We have recently
expanded our offerings beyond active ingredients to include targeted full formulations of skin care products, marketed and sold by our wholly-owned subsidiary,
Solésence ™ LLC. We target markets in which we believe practical solutions may be found using our products. We 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. Recently developed technologies have made certain new products possible and opened potential new markets. We recently developed new
material solutions in the light energy-management area (particularly solar control) that have been taken to potential customers, and for which we are experiencing
early-stage, accelerating revenue growth. We also developed a new solution for surface treatments (coatings) which we used to launch new products in personal
care, including those of our subsidiary, Solésence ™ LLC, in the fall of 2016. 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 Statements of Operations, as it does
not represent revenue directly from our nanocrystalline materials.
(2)
Summary of Significant Accounting Policies
Use of Estimates and Risks and Uncertainties
The preparation of financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain assumptions are also necessary to assess the impact of risks and uncertainties on
the financial statements, such as cash flow projections, availability of capital if needed to support the ongoing operations of the business, and our expected
compliance with contractual commitments. These risks and uncertainties are further discussed in Note 12. Any changes in these assumptions or business plans
could have a material impact on the financial statements.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of demand deposits, but also include certain lower risk investments with a stated maturity upon acquisition
of 90 days or less (e.g., money market funds or a certificate of deposit with a maturity of 90 days or less at the time of purchase).
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Trade Accounts Receivable
Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding
amounts on a monthly basis. We determine the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an
aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are
recorded when received. Our typical credit terms are thirty days from shipment and invoicing.
Inventories
Inventories are stated at the lower of cost, maintained on a first in, first out basis, or market. We have recorded allowances to reduce inventory relating to
excess quantities of certain materials. Write-downs of inventories establish a new cost basis, which is not increased for future increases in market value of
inventories or changes in estimated excess quantities.
Equipment and Leasehold Improvements
Equipment is stated at cost and is being depreciated over its estimated useful life (3-20 years) using the straight-line method. Leasehold improvements
are stated at cost and are being amortized using the straight-line method over the shorter of the useful life of the asset or the term of the lease (3-13 years).
Depreciation expense for leased assets is included with depreciation expense for owned assets. From time to time we have self-constructed assets. These
assets are stated at cost plus the capitalization of labor and are depreciated over an estimated useful life (7-10 years) using the straight-line method.
Long Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be
recoverable. We conduct long-lived asset impairment analyses in accordance with ASC 360-10-15, Impairment or Disposal of Long-Lived Assets . ASC 360-10-
15 requires us to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and
liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount
of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on
discounted cash flow analysis or appraisals.
Asset Retirement Obligations
In connection with our leased facilities, we are required to remove certain leasehold improvements upon termination of our occupancy. We follow the
provisions of the FASB issued ASC 410-20, Asset Retirement Obligations, under which we recognize a liability for the fair value of these asset retirement
obligations. The fair value of that liability is measured based on an expected cash flow approach and accretion expense is recognized each period to recognize
increases to the fair value of the liability due to the passage of time. Increases to the fair value of the liability, except for accretion, are added to the carrying
value of the long-lived asset. Those increases are then reported in amortization expense over the estimated useful life of the long-lived asset.
Activity in the asset retirement obligation account for the years ended December 31, is as follows:
Balance, beginning
Accretion of liability due to passage of time
Amortization of asset due to passage of time
Balance, ending
2016
2015
172 $
6
—
178 $
166
6
—
172
$
$
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Financial Instruments
We follow ASC Topic 820, Fair Value Measurements and Disclosures , which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon
the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires
significant management judgment.
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, along with the promissory
note with no related borrowings described in Note 3, and any borrowings on the working capital line of credit described in Note 3. 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 December 31, 2016 and 2015.
Product Revenue
Product revenue consists of sales of product that are recognized when realized and earned. This occurs when persuasive evidence of an arrangement
exists, title transfers via shipment of products or when delivery has occurred, the price is fixed or determinable and collectability is reasonably assured.
Other Revenue
Other revenue may include revenue from technology license fees and paid development projects. Technology license fees and paid development
projects are recognized when earned pursuant to the agreed upon contractual arrangement, when performance obligations are satisfied, the amount is fixed or
determinable, and collectability is reasonably assured.
Shipping and handling costs are included in other revenue when products are shipped and invoiced to the customer. We include the related cost of
shipping and handling in cost of goods sold.
Research and Development Expenses
Research and development expenses are recognized as expense when incurred.
Income Taxes
We account for income taxes using the liability method. As such, deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are
calculated using the enacted tax rates and laws that are expected to be in effect when the anticipated reversal of these differences is scheduled to occur.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated
with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that
exceeds the amount measured, as described above, is reflected as a liability for uncertain tax benefits in the accompanying balance sheets along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We have not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility. We file tax returns in all appropriate jurisdictions, which includes a federal tax return and Illinois state tax return. Open tax years for
both jurisdictions are 2013 to 2015, which statutes expire in 2017 to 2019, respectively, under most cases and subject to appropriate laws and regulations. When
and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in selling, general and administrative expenses in the
statements of operations. As of December 31, 2016 and 2015, we had no liability for unrecognized tax benefits.
Earnings Per Share
Options to purchase approximately 859,000 shares of common stock that were outstanding as of December 31, 2016 were not included in the
computation of earnings per share for the year ended December 31, 2016, as the impact of such shares would be both negligible and anti-dilutive. Options to
purchase approximately 210,000 shares of common stock that were outstanding as of December 31, 2015 were not included in the computation of earnings per
share for the year ended December 31, 2015, as the impact of such shares would be both negligible and anti-dilutive.
New Accounting Pronouncements
During May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers , and
several related updates including ASU No. 2016-08 and ASU No. 2016-10, which supersedes nearly all existing revenue recognition guidance under U.S.
generally accepted accounting principles. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an
amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance requires certain disclosures
designed to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts
with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period,
which is our first quarter of 2018. The new standard allows application either retrospectively to each prior reporting period presented or retrospectively as a
cumulative-effect adjustment as of the date of adoption. We are evaluating the effect that ASU 2014-09 will have on our financial statements and related
disclosures, but do not expect it to have a material impact on our financial position, results of operations, or cash flows.
During February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842). This standard requires the recognition of assets and
liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will
recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially
be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including the presentation of expenses
and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Initial costs directly attributable to negotiating and
arranging the lease will be included in the asset. For leases with a term of 12 months or less, a lessee can make an accounting policy election by class of
underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and quantitative disclosures
regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the
financial statements and provide additional information about the nature of an organization’s leasing activities. The amendments in this standard are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the
impact its adoption will have on the presentation of our financial statements and related disclosures.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
During August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU
2014-15”). ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure
in certain circumstances. The new standard is effective for all entities in the first annual period ending after December 15, 2016, or January 1, 2017 for us.
Earlier adoption was permitted. The adoption did not impact the presentation of our financial statements, financial position, results of operations, cash flows and
related disclosures.
During March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718,
Compensation - Stock Compensation. The objective of this update is part of the FASB’s Simplification Initiative as it applies to several aspects of the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the
statement of cash flows. The effective date of the update is for fiscal years beginning after December 15, 2016 and interim periods within that reporting period, or
January 1, 2017 for us. Early adoption was permitted. The adoption did not have a material impact on the presentation of our financial statements, financial
position, results of operations, cash flows and related disclosures.
(3) Note 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. We then sold our certificates of deposit. 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 pursuant
to the terms of our facility lease agreement. Because there were no amounts outstanding on the note at any time during 2016 or 2015, we have recorded no
related liability on our balance sheet.
During March 2015, we entered into a Business Loan Agreement (the “Line of Credit Agreement”) with Libertyville Bank and Trust Company, a Wintrust
Community Bank (“Libertyville”), our primary bank. This Line of Credit Agreement was subsequently amended on April 13, 2015. Under the Line of Credit
Agreement, as amended, Libertyville will provide a maximum of $300, or 75% of our eligible accounts receivable, whichever is less, of revolving credit,
collateralized by a senior priority lien on our accounts receivable, inventory, equipment, general intangibles and fixtures. Interest on any borrowings would be the
prime rate at the time plus 1%. Availability to draw on the line requires us to have at least $1 million in cash, including any amounts borrowed, 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 days of the advance. The Line
of Credit Agreement was to expire on March 4, 2016, but during March 2016 was extended until March 4, 2017. During February 2017, this agreement was
further extended to March 2018. No borrowing on this line was outstanding on December 31, 2016.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(4) Inventories
Inventories consist of the following:
Raw materials
Finished goods
Allowance for excess quantities
(5) Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following:
Machinery and equipment
Office equipment
Office furniture
Leasehold improvements
Construction in progress
Less: Accumulated depreciation and amortization
As of December 31,
2016
2015
$
$
283 $
510
793
(21)
772 $
184
530
714
(52)
662
As of December 31,
2016
2015
$
$
14,587 $
790
110
4,814
75
20,376
(18,981)
1,395 $
14,562
778
110
4,789
11
20,250
(18,389)
1,861
Depreciation expense was $605 and $726, for the years ended December 31, 2016 and 2015, respectively.
(6) Lease Commitments
We lease our operating facilities under operating leases. During October 2016 we entered into a Third Lease Amendment related to our primary facility in
Romeoville, Illinois, extending the term of the lease through December 31, 2024. The current monthly rent on this lease amounts to $25.
We lease our Burr Ridge, Illinois, facility under an agreement extended during September 2010, which extended the term through September 2014 (we
have since exercised our final tenant option to extend the term through September 2017). During March 2017, we entered into a new Building Lease for this
facility that will begin September 2017 and extend through September 2021, with our having the option to further extend this lease by three additional one-year
periods. The current monthly rent on this lease amounts to $15. During 2016 we also renewed our lease for our offsite warehouse in Romeoville, Illinois, through
August 2019. The current monthly rent on this lease amounts to $5.
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The following is a schedule of future minimum lease payments including real estate taxes as required under the above operating leases, as well as the
remaining lease payments under capital leases as referenced below:
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
Total minimum payments required:
Operating
Leases
698
700
691
589
554
1,289
4,521* $
$
$
Capital
Leases
58
45
34
18
15
—
170*
* After paying $60 to retire a capital lease during January 2017, the remaining payments under capital leases include principal of $147 and interest of
$23. Also, includes future payments of the Burr Ridge Building Lease executed March 2017 as described above.
Rent expense, including real estate taxes, under these leases amounted to $597 and $588, for the years ended December 31, 2016 and 2015,
respectively.
On December 31, 2016 equipment under capital leases had a cost of $362 with accumulated depreciation of $62, compared to $316 and $29,
respectively, on December 31, 2015. Principal and interest payments are due monthly under the capital lease obligations through October 2020. We entered into
one new capital lease during 2016 for $75 and a 5-year duration (through August 2021), and recognized an impairment charge, reducing the value of two other
pieces of capital equipment by $54 in aggregate. We entered into three new capital leases during 2015 for $132 and 3 to 5 year durations (through August
2020).
(7) Accrued Expenses
Accrued expenses consist of the following:
Accrued payroll and related expenses
Customer net volume rebate payable
Other
(8) Income Taxes
As of December 31,
2016
2015
$
$
167 $
201
153
521 $
108
—
168
276
Our net income tax provision, including both current and deferred, related to U.S. federal and state income taxes, is none.
A reconciliation of income tax expense to the amount computed by applying the Federal income tax rate to loss before provision for income taxes as of
December 31, 2016 and 2015 is as follows:
Income tax credit at statutory rates
Nondeductible expenses
State income tax, net of federal benefits
Other
Increase in valuation allowance
2016
2015
$
$
(436) $
2
(66)
144
356
— $
(405)
3
(61)
(3)
466
—
F-13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of our deferred income taxes consist of the following:
Deferred tax assets:
Net operating loss carryforwards
Inventory and other allowances
Charitable contribution carryforwards
Excess (tax) book depreciation
Excess (tax) book amortization
Share-based compensation
Other accrued costs
Total deferred tax assets
Less: Valuation allowance
Deferred income taxes
As of December 31,
2016
2015
$
$
$
31,935
16
5
805
69
1,328
219
34,377
(34,377)
—
$
31,590
28
6
709
67
1,396
225
34,021
(34,021)
—
The valuation allowance increased approximately $0.4 million and $0.5 million for the years ended December 31, 2016 and 2015, respectively (with no
expiring net operating loss carryforwards and credits for either period; a portion of the charitable contribution carryforward expired during 2016) due principally to
the change in the net operating loss carryforward and uncertainty as to whether future taxable income will be generated prior to the expiration of the
carryforward period. Under the Internal Revenue Code, certain ownership changes, including the prior issuance of preferred stock and our public offering of
common stock, may subject us to annual limitations on the utilization of our net operating loss carryforward. As of December 31, 2016, the amounts subject to
limitations has not yet been determined.
We have net operating loss carryforwards for tax purposes of approximately $82 million on December 31, 2016, which expire between 2018 and 2036.
During 2011, the state of Illinois suspended the use of net operating loss carryforwards for a four year period beginning 2011, extending the term of all net
loss carryforwards by a corresponding four years.
(9) Capital Stock
As of December 31, 2016 and 2015, we had 24,088 authorized but unissued shares of preferred stock. In addition, as of December 31, 2016, 1,196,000
authorized but unissued shares of common stock have been reserved for future issuance upon exercise of stock options. During August 2016, our stockholders
authorized an additional 7,000,000 shares of common stock, increasing our authorized shares of common stock from 35,000,000 to 42,000,000 authorized
shares. Our stockholders also authorized an additional 1,200,000 shares of common stock that may be issued pursuant to our 2010 Equity Compensation Plan.
(10) Stock Options and Stock Grants
We have entered into stock option agreements with certain officers, employees and directors. The stock options generally expire ten years from the date
of grant.
Employee Stock Options
We follow FASB ASC Topic 718 , 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 $207 and $181 for the years ended December 31, 2016 and 2015, respectively.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As of December 31, 2016, there was approximately $183 of total unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under our stock option plans. That cost is expected to be recognized over a remaining weighted-average period of 1.7 years.
The following table illustrates the various assumptions used to calculate the Black-Scholes option pricing model for options granted for all years
presented:
Weighted-average risk-free interest rates:
Dividend yield:
Years Ended December 31,
2016
2015
1.5%
0.00%
1.7%
0.00%
Weighted-average expected life of the option:
7 years
7 years
Weighted-average expected stock price volatility:
95%
Weighted-average fair value of the options granted:
$
0.36
$
95%
0.36
We use the Black−Scholes option pricing model to determine the fair value of stock based compensation. The Black−Scholes model requires us to
make several assumptions, including the estimated length of time employees will retain their vested stock options before exercising them (“expected term”), the
estimated volatility of our common stock price over the expected term and estimated forfeitures. Expected price volatility of the fiscal 2016 and 2015 grants is
based on the daily market rate changes of our stock going back to January 1, 2008. The shares granted in fiscal 2016 and 2015 had a vesting period of three
years and a contractual life of 10 years. Forfeitures were estimated at 4% and 4% for the years ended December 31, 2016 and 2015, based on our historical
experience. The Black−Scholes model also requires a risk free interest rate, which is based on the U.S. Treasury yield curve in effect at the time of the grant,
and the dividend yield on our common stock, which is assumed to be zero since we do not pay dividends and have no current plans to do so in the future.
Changes in these assumptions can materially affect the estimate of fair value of stock based compensation and consequently, the related expense recognized
on the statement of operations. We recognize stock based compensation expense on a straight-line basis.
The following table summarizes the option activity for our employees and directors during the year ended December 31, 2016:
Options
Outstanding on January 1, 2016
Granted
Exercised
Forfeited or expired
Outstanding on December 31, 2016
Exercisable on December 31, 2016
Shares available for grant
Weighted
Average Exercise
Price per
Share
Weighted
Average
Remaining
Contractual Term
(years)
Aggregate
Intrinsic
Value
(rounded)
Shares
0.95
0.48
0.40
3.08
0.81
0.96
$
$
$
$
$
$
2,574,000
508,000
(44,000)
(105,000)
2,933,000
2,053,000
1,196,000
F-15
6.3
5.3
$
$
616
378
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The aggregate intrinsic value in the table above is based on our closing stock price of $0.72 on the last business day for the year ended December 31,
2016.
During the years ended December 31, 2016 and 2015, the total intrinsic value of our stock options exercised was $19 and $10, respectively. Cash
received for option exercises was $18 and $26 during the years ended December 31, 2016 and 2015, respectively. We had approximately 44,000 options
exercised during the year ended December 31, 2016, compared to 69,000 in 2015. Based on our election of the “with and without” approach, no realized tax
benefits from stock options were recognized for the years ended December 31, 2016 and 2015.
Stock Appreciation Rights
Prior to 2011, we granted our Outside Directors stock appreciation rights (SARs) under our Amended and Restated 2006 Stock Appreciation Rights Plan
and subsequently under our 2010 Equity Plan. The change in fair value of the awards granted during prior years was included in non-cash compensation
expense for the years ended December 31, 2016 and 2015. The SARs granted vested immediately and were payable upon the directors’ removal or resignation
from the position of director. These awards were accounted for as liability awards, included in accrued expenses as of December 31, 2015, and adjusted to fair
value each reporting period. The fair value of the liability on December 31, 2016 and 2015 was zero. During November 2016, all vested SARs were terminated.
Those Outside Directors whose vested SARs were cancelled received immediately vested options in the same quantity, and at the same strike price, as their
cancelled SARs. The options granted are included in the above chart. We have no remaining SARs outstanding.
Restricted Stock
As of both December 31, 2016 and 2015, we did not have any unvested non-director restricted stock or performance shares outstanding.
(11) 401(k) Profit-Sharing Plan
We have a 401(k) profit-sharing plan covering substantially all employees who meet defined service requirements. We have made in the past, and may
make in the future, maximum contributions of 100% of the first 3% and 50% of the next 2% of the participant’s salary. We made changes to our benefits program
and, as part of those changes, discontinued these Company contributions effective January 2014, which resulted in no contributions made during 2016 or 2015.
During 2017, we implemented a new Company contribution program, in which 10% of the employee’s contribution will be matched up to an 8% contribution (for a
match of up to 0.8% of a participant’s salary).
(12) Significant Customers and Contingencies
Revenue from three customers constituted approximately 69%, 5% and 4%, respectively, of our 2016 revenue. Amounts included in accounts receivable
on December 31, 2016 relating to these three customers were approximately none, $39 and $180, respectively. Revenue from these three customers constituted
approximately 63%, 4% and 7%, respectively, of our 2015 revenue. Amounts included in accounts receivable on December 31, 2015 relating to these three
customers were approximately none, $35 and $240, respectively. The loss of one of these significant customers or the failure to attract new customers could
have a material adverse effect on our business, results of operations and financial condition.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 our cash, cash equivalents and certain investments are less than $1 million, or (b) of an acceleration of any debt maturity
having a principal amount of more than $10 million. 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.
We believe that we have sufficient cash and credit availability, (See Liquidity and Capital Resources in Management’s Discussion and Analysis in Part II,
Item 7 of this Form 10-K for a further discussion, as well as the description of our Line of Credit Agreement described in Note 3) to operate our business during
2017. 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 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.
Should events arise that make it appropriate for us to seek additional financing, such additional financing may not be available on acceptable terms or
even at all, and any such financing could be dilutive to our stockholders. Such a financing could be necessitated by such things as the loss of one or more
significant customers or a significant decline in revenue from those customers, currently unknown capital requirements, new regulatory requirements, the need
to meet cash requirements under our BASF agreement to avoid a triggering event, or other circumstances not currently anticipated by us. The failure to obtain
sufficient capital may impair or curtail our business plans and under such circumstances may raise doubt regarding our ability to continue as a going concern.
(13) Business Segmentation and Geographical Distribution
Revenue from international sources approximated $1,039 and $1,393 for the years ended December 31, 2016 and 2015, respectively. As part of our
revenue from international sources, we recognized approximately $902 and $1,339 in product revenue from a number of German companies, in the aggregate,
for the years ended December 31, 2016 and 2015, respectively.
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our operations comprise a single business segment and all of our long-lived assets are located within the United States.
(14) Subsequent Events
As discussed in Note 3, the Line of Credit Agreement with our primary bank (Libertyville) was to expire on March 4, 2017, but during February 2017 this
agreement was further extended to March 2018.
As discussed in Note 6, during March 2017 we entered into a new Building Lease for our Burr Ridge facility. The previous lease expires September
2017, at which time this new lease will begin, and extend through September 2021. We have the option to further extend this lease by up to three additional one
year periods.
As discussed in Note 6, during January 2017 we paid $60 to retire a capital lease related to equipment that we sold to a third party for $100, its
remaining book value. No gain or loss was recognized during 2017 associated with the transaction.
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Pursuant to the requirements of Section 13 or 15(d) 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, on the 29th day of March, 2017.
SIGNATURES
NANOPHASE TECHNOLOGIES CORPORATION
By:
By:
/s/ Jess A. Jankowski
Jess A. Jankowski
President and Chief Executive Officer
/s/ Frank J. Cesario
Frank J. Cesario
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 29th day of March, 2017.
Signature
/s/ Jess A. Jankowski
Jess A. Jankowski
/s/ Frank J. Cesario
Frank J. Cesario
/s/ James A. Henderson
James A. Henderson
/s/ George A. Vincent, III
George A. Vincent, III
/s/ James A. McClung
James A. McClung
/s/ Richard W. Siegel
Richard W. Siegel
/s/ W. Ed Tyler
W. Ed Tyler
/s/ R. Janet Whitmore
R. Janet Whitmore
Title
President, Chief Executive Officer (principal executive officer) and Director
Chief Financial Officer (principal financial and principal accounting officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit
Number
EXHIBIT INDEX
2
Plan and Agreement of Merger dated as of November 25, 1997 by and between the Company and its Illinois predecessor, incorporated by reference to
Exhibit 2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 (the “1997 10-K”), SEC File No. 000-22333.
3(i).1 Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the 1997 10-K, SEC File No. 000-22333.
3(i).2
First Amendment to the Certificate of Incorporation of the Company dated July 27, 2006, incorporated by reference to Exhibit 99.3 to the Company’s
Current Report on Form 8-K filed July 27, 2006, SEC File No. 000-22333.
3(i).3
Second Amendment to the Certificate of Incorporation of the Company dated August 23, 2010, incorporated by reference to Exhibit A of the Company’s
Definitive Proxy Statement on Form DEF14A filed July 9, 2010, SEC File No. 000-22333.
3(i).4
Third Amendment to the Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form
8-K filed August 29, 2016.
3(ii).1 By-Laws of the Company, incorporated by reference to Exhibit 3.2 to the 1997 10-K, SEC File No. 000-22333.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Specimen stock certificate representing common stock, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A
filed November 4, 1997 (File No. 333-36937) (the “Form S-1/A”).
Form of Warrants, incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed October 1, 1997 (File No. 333-
36937) (the “IPO S-1”).
Certificate of Designation of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 1998, SEC File No. 000-22333.
Stock Purchase Agreement dated March 23, 2004 between the Company and Altana Chemie AG, incorporated by reference to Exhibit 4.10 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 10-K”), SEC File No. 000-22333.
Registration Rights Agreement dated March 23, 2004 between the Company and Altana Chemie AG, incorporated by reference to Exhibit 4.11 to the
2003 10-K, SEC File No. 000-22333.
Stock Purchase Agreement dated August 25, 2006 between the Company and Rohm and Haas Electronic Materials CMP Holdings, Inc., incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed August 28, 2006, SEC File No. 000-22333.
Registration Rights Agreement dated August 25, 2006 between the Company and Rohm and Haas Electronic Materials CMP Holdings, Inc.,
incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed August 28, 2006, SEC File No. 000-22333.
E-1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Common Stock Purchase Agreement, dated February 10, 2016, between the Company and Bradford T. Whitmore, incorporated by reference to Exhibit
4.1 of the Company’s Current Report on Form 8-K filed February 10, 2016.
Industrial Building Lease dated September 15, 2004 between the Company and the Village of Burr Ridge, incorporated by reference to Exhibit 10.32 to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 10-K”), SEC File No. 000-22333.
Industrial Building Lease Agreement between Centerpoint Properties Trust (formerly CP Financing Trust) and the Company, dated June 15, 2000,
incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (the “2000 10-K”),
SEC File No. 000-22333.
Lease Amendment effective October 1, 2005 between the Company and Centerpoint Properties Trust, incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed October 20, 2005, SEC File No. 000-22333.
Second Amendment to Industrial Lease Agreement, dated as of November 13, 2014 between the Company and MLRP 1319 Marquette LLC, successor-
in-interest to Centerpoint Properties Trust, incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2014.
Third Amendment to Industrial Lease Agreement, entered into on October 17, 2016 and effective October 1, 2016, by and between the Company and
1319 Marquette, LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 19, 2016.
Mutual Cooperation Agreement entered into on January 17, 2012, by and among the Company, C.I. Kasei Co., Ltd. and CIK NanoTek Corporation,
incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 20, 2012, SEC File No. 000-22333.
Trademark Ownership Assignment Agreement, dated March 31, 2012, between the Company and CIK NanoTek Corporation, incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 4, 2012, SEC File No 000-22333.
Memorandum on the Payment of Royalty, dated March 31, 2012, between the Company and CIK NanoTek Corporation, incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 4, 2012, SEC File No 000-22333.
Supply Agreement between the Company and Schering-Plough HealthCare Products, Inc. dated as of March 15, 1997, incorporated by reference to
Exhibit 10.17 to the Form S-1/A.
10.10* Zinc Oxide Supply Agreement dated as of September 16, 1999 between the Company and BASF Corporation, as assignee, incorporated by reference to
Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, SEC File No. 000-22333.
10.11* Amendment No. 1 to Zinc Oxide Supply Agreement dated as of January, 2001 between the Company and BASF Corporation, incorporated by reference
to Exhibit 10.24 to the 2000 10-K, SEC File No. 000-22333.
10.12 Amendment No. 2. to Zinc Oxide Supply Agreement dated as of March 17, 2003 between the Company and BASF Corporation, incorporated by
reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “2002 10-K”), SEC File No. 000-
22333.
E-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.13* Amendment No. 3 to Zinc Oxide Supply Agreement entered into on December 2, 2012, between the Company and BASF Corporation, incorporated by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed December 6, 2012.
10.14 Z-COTE HP-2 Brand Supply Agreement dated May 15, 2006 between the Company and BASF Corporation, incorporated by reference to Exhibit 99.1 to
the Company’s Current Report on Form 8-K filed June 20, 2006, SEC File No. 000-22333.
10.15* Amended and Restated Cooperation Agreement dated August 25, 2006 between the Company and Rohm and Haas Electronic Materials CMP Inc.,
incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed August 28, 2006, SEC File No. 000-22333.
10.16 Supply Agreement effective as of March 23, 2009, between the Company and Rohm and Haas Electronic Materials CMP Inc., incorporated by reference
to Exhibit 10.56 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, SEC File No. 000-22333.
10.17* Distributor Agreement dated October 24, 2005 between Johnson Matthey Catalog Company, Inc., d/b/a ALFA AESAR and the Company, incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed November 1, 2005, SEC File No. 000-22333.
10.18* Supply Agreement dated March 3, 2006 between Roche Diagnostics GmbH and the Company, incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed March 9, 2006, SEC File No. 000-22333.
10.19* First Amendment to the Supply Agreement entered into on November 19, 2014 between the Company and Roche Diagostics GmbH, incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 25, 2014.
10.20* Second Amendment to the Supply Agreement, entered into on November 21, 2016, between the Company and Roche Diagnostics GmbH, incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 28, 2016.
10.21
Joint Development Agreement dated March 23, 2004 between the Company and Altana Chemie AG, incorporated by reference to Exhibit 10.29 to the
2003 10-K, SEC File No. 000-22333.
10.22* Agreement dated July 7, 2008 between the Company and Altana Chemie GmbH, incorporated by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K filed July 18, 2008, SEC File No. 000-22333.
10.23* Settlement and Termination Agreement, dated August 20, 2010, between the Company and Altana Chemie GmbH, incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed August 25, 2010, SEC File No. 000-22333.
10.24* Supply Agreement, dated August 20, 2010, between the Company and Altana Chemie GmbH, incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed August 25, 2010, SEC File No. 000-22333.
10.25* Supply Agreement, dated as of March 31, 2016, between the Company and Ester Solutions Company, incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed April 6, 2016.
E-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.26 Business Loan Agreement, dated March 4, 2015, between the Company and Libertyville Bank and Trust Company (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed March 10, 2015).
10.27 Promissory Note, dated March 4, 2015, granted by the Company in favor of Libertyville Bank and Trust Company (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed March 10, 2015).
10.28 Commercial Security Agreement, dated March 4, 2015, between the Company and Libertyville Bank and Trust Company (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 10, 2015).
10.29 Change in Terms Agreement and Business Loan Agreement, dated April 13, 2015, between the Company and Libertyville Bank and Trust Company,
incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.
10.30 Business Loan Agreement, dated March 4, 2016, between the Company and Libertyville Bank and Trust Company, incorporated by reference to Exhibit
10.1 of the Current Report on Form 8-K filed March 10, 2016.
10.31 Change in Terms Agreement, dated March 4, 2016, between the Company and Libertyville Bank and Trust Company, incorporated by reference to
Exhibit 10.2 of the Current Report on Form 8-K filed March 10, 2016.
10.32 Change in Terms Agreement, dated February 14, 2017, between the Company and Libertyville Bank and Trust Company .
10.33 Employment Agreement effective as of September 25, 2008, between the Company and Nancy Baldwin, incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K filed October 2, 2008, SEC File No. 000-22333. +
10.34 Employment Agreement dated June 24, 2009 between the Company and Frank Cesario, incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed June 26, 2009, SEC File No. 000-22333. +
10.35 Employment Agreement effective August 12, 2009 between the Company and Jess Jankowski, incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, SEC File No. 000-22333. +
10.36 Employment Agreement dated November 28, 2012, between the Company and Kevin Cureton, incorporated by reference to Exhibit 10.36 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2012. +
10.37 Form of Indemnification Agreement between the Company and each of its directors and executive officers, incorporated by reference to Exhibit 10.2 to
the Form S-1/A. +
10.38 Nanophase Technologies Corporation 2004 Equity Compensation Plan (“2004 Equity Plan”), incorporated by reference to Exhibit 4 to the Company’s
Registration Statement on Form S-8 (File No. 333-119466). +
10.39 First Amendment to 2004 Plan, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed July 27, 2006, SEC File
No. 000-22333. +
E-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.40 Form of Stock Option Agreement under the 2004 Equity Plan, incorporated by reference to Exhibit 4.13 to the 2004 10-K, SEC File No. 000-22333. +
10.41 Form of Restricted Share Grant Agreement under the 2004 Equity Plan, incorporated by reference to Exhibit 4.14 to the 2004 10-K, SEC File No. 000-
22333. +
10.42 Form of Performance Share Grant Agreement under the 2004 Equity Plan, incorporated by reference to Exhibit 4.15 to the 2004 10-K, SEC File No. 000-
22333. +
10.43 Nanophase Technologies Corporation Non-Employee Director Deferred Compensation Plan, incorporated by reference to Exhibit 99.2 to the Company’s
Current Report on Form 8-K filed January 9, 2006, SEC File No. 000-22333. +
10.44
2006 Stock Appreciation Rights Plan (the “2006 Plan”), incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed
October 3, 2006, SEC File No. 000-22333. +
10.45 Amended and Restated 2006 Stock Appreciation Rights Plan, adopted April 8, 2009, incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed April 9, 2009, SEC File No. 000-22333. +
10.46 Form of Grant Agreement under the 2006 Plan, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed October 3,
2006, SEC File No. 000-22333. +
10.47
2008 Long-Term Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 25, 2008, SEC
File No. 000-22333. +
10.48 Nanophase Technologies Corporation 2010 Equity Compensation Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed August 29, 2016. +
10.49 Form of Stock Option Award Agreement under the 2010 Equity Compensation Plan, incorporated by reference to Exhibit 10.47 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2013. +
10.50 Building Lease, dated as of September 15, 2010, between the Company and the Village of Burr Ridge.
10.51 Building Lease, dated as of March 13, 2017, between the Company and the Village of Burr Ridge.
23.1
Consent of RSM US LLP.
31.1
Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.
31.2
Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.
32
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (Extensible
Business Reporting Language): (1) the Balance Sheets, (2) the Statements of Operations, (3) the Statements of Cash Flows, (4) the Statements of
Stockholders’ Equity, and (5) the Notes to the Financial Statements.
* Confidentiality previously granted for portions of this agreement.
+
Indicates management contracts or compensatory plans or arrangements.
E-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation 10-K
Exhibit 10-32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation - 10-K
BUILDING LEASE
Exhibit 10.50
DATE OF LEASE
____________, _______
TERM OF LEASE
Beginning
9/15/2010
Ending
9/15/2014
BASE RENT AMOUNT
$142,323.12 for first year
LOCATION OF PREMISES:
453 Commerce
Burr Ridge, Illinois
Security Deposit:
$ 10,000.00
DESCRIPTION OF PREMISES: The property being leased hereunder is as depicted upon That diagram/site plan attached hereto as Exhibit A, together with
those rights of ingress, egress, storage and loading set forth herein.
LESSEE
LESSOR
Name: Nanophase Technologies Corporation
Name: Village of Burr Ridge
Address: 453 Commerce
Burr Ridge, IL
Address: 7660 S. County Line Rd.
Burr Ridge, IL 60521
In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor, the
premises designated above (the “Premises”), together with the appurtenances thereto, for the above Term.
1 . Rent: Lessee shall pay Lessor the base rent amount of $142,323.12, which consists of approximately $7.12/square foot for 20,000 square feet,
in twelve (12) equal installments in the amount of Eleven Thousand Eight Hundred and Sixty and 26/100 Dollars ($11,860.26) as rent for the Premises, at
Lessor’s address as shown above, payable on or before the 15th of each calendar month. The first monthly payment and the security deposit in the amount of
$10,000 shall be due on or before September 15, 2010. Rent shall continue to be due monthly for the term of this Lease to be calculated based upon the
following: for each year after the first year of this Lease, the base rental amount of $142,323.12 will increase annually by that percentage equal to the annual
percentage increase for the preceding twelve (12) months in the Consumer Price Index, (Chicago-All Items for all Urban Wage Earners and Clerical Workers)
(CPI-W) or an amount of 3% annually, whichever is greater.
2 . Improvements: Lessee shall be responsible for any improvements to the Premises, including, for example, carpeting, lighting and fixtures,
partitions or ceiling enhancements, provided that any alteration or addition to the Premises by Lessee requires the prior written consent of Lessor. Said consent
will not be unreasonably withheld by Lessor.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3 . Condition and Upkeep of Premises: Lessee has examined and knows the condition of the Premises and has received the same in good order
and repair, and acknowledges that no representations as to the condition and repair thereof have been made by Lessor, or his agent, prior to or at the execution
of this Lease that are not herein expressed; Lessee will keep the Premises including all appurtenances, in good repair, replacing all broken glass and all
damaged plumbing fixtures with others of equal quality, and will keep the Premises, including adjoining areas, in a clean and healthful condition according to the
applicable municipal ordinances during the term of this Lease at Lessee’s expense. Lessor will remove all snow and ice from the roof when necessary, and will
be responsible for snow removal, as needed, from the sidewalk abutting the Premises and parking lot serving the Premises. Upon the termination of this Lease,
for any reason, Lessee will yield up the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear excepted. Lessor has responsibility for
upkeep of all areas on the exterior of building, including, but not limited to the roof, parking area, grass area, sidewalks and exterior walls. Lessee has
responsibility for upkeep of all elements on the interior of the space within the Premises, including, but not limited to, plumbing, electric, and H.V.A.C. equipment
and facilities. Lessor represents that the plumbing, electric, gas and H.V.A.C. equipment and facilities is in good working order at the commencement of this
lease. Lessor shall not be obliged to incur any other expense for repairing any improvements upon said demised premises or connected therewith, and the
Lessee at his own expense will keep all improvements in good repair (injury by fire, or other causes beyond Lessee’s control excepted) as well as in a good
tenantable and wholesome condition, and will comply with all local or general regulations, laws and ordinances applicable thereto. If Lessee does not make
repairs as required hereunder promptly and adequately. Lessor may, but need not make such repairs and pay the costs thereof, and such costs shall be so much
additional rent immediately due from and payable by Lessee to Lessor. Lessee is obligated to provide Lessor prompt notice of any necessary repairs for which
Lessor may be responsible.
4. Lessee’s Access to Premises: Lessee shall have rights of reasonable ingress and egress to the Premises over the paved portions and sidewalks
on Lessor’s property as well as ingress and egress rights over Lessor’s property to access Lessee’s loading dock and shared use of Lessor’s paved parking
area. Lessee shall also be entitled to reasonable use of that area needed to the south of the Premises to locate its outside storage tank(s). The storage tank(s)
shall be located generally in that area depicted for such use on Exhibit A. Lessee agrees to locate and install said tank(s) in a neat and orderly fashion. Lessee
shall petition the Village of Burr Ridge or other applicable governmental entity for any variations(s) or permit(s) that may be needed to lawfully locate, construct
and/or operate such tanks, Lessor acknowledges that said storage tanks are an integral part of Lessee’s use of the Premises. If such permit, variation or
approval as is needed to permit the lawful construction and use of such tanks is denied by the governmental entity with jurisdiction. Lessee shall have the option,
within thirty (30) days after such denial, to terminate this Lease.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
5. Lessee Not to Misuse; Sublet: Assignment: Lessee will not allow the Premises to be used for any purpose that will increase the rate of insurance
thereon for Lessor, and will not load floors with machinery or goods beyond the floor load rating prescribed by applicable governmental ordinances, and will not
allow the Premises to be occupied in whole, or in part, by any other person, and will not sublet the same or any part thereof, nor assign this Lease without in
each case the prior written consent of the Lessor first had, and Lessee will not permit any transfer by operation of law, mortgage or other encumbrance of the
interest in the Premises acquired through this Lease. Lessee will not permit the Premises to be used for any unlawful purpose, or for any purpose that will injure
the reputation of the building or increase the fire hazard of the building, or disturb the neighborhood, provided however, it is understood and acknowledged by
Lessor that Lessee will conduct certain warehousing and manufacturing activities on the Premises and such activities shall be permitted if in compliance with
applicable federal, state and local law. Lessee will not allow any signs, cards or placards to be posted, or placed thereon, nor permit any alteration of or addition
to any part of the Premises, except by written consent of Lessor which consent would not be unreasonably withheld; all alterations and additions to the Premises
shall remain for the benefit of Lessor unless otherwise provided in the consent aforesaid. Lessor represents that the Premises are currently zoned for Lessee’s
manufacturing, warehousing and office uses.
6 . Mechanic’s Lien: Lessee will not permit any mechanic’s lien or liens to be placed upon the Premises or any building or improvement thereon
during the term hereof, and in case of the filing of such lien Lessee will promptly pay same. If a default in payment shall continue for thirty (30) days after written
notice to Lessee from Lessor to the Lessee, the Lessor shall have the right and privilege at Lessor’s option of paying the same or any portion of the lien amount
without inquiry as to its validity, and any amounts so paid, including expenses and interest, shall be so much additional indebtedness hereunder due from Lessee
to Lessor and shall be repaid to Lessor immediately on tender of bill the lien costs.
7 . Indemnify for Accidents: Lessee covenants and agrees that it will protect and save and keep the Lessor forever harmless and indemnified
against and from any penalty or damages or charges imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Lessee or those
holding under Lessee, and that Lessee will at all times protect, indemnity and save and keep harmless the Lessor against and from any and all loss, cost,
damage or expense, arising out of or from any accident or other occurrences on or about the Premises, causing injury to any person or property whomsoever or
whatsoever and will protect, indemnify and save and keep harmless the Lessor against and from any and all claims and against and from any and all loss, cost,
damage or expense arising out of any failure of Lessee in any respect to comply with and perform all the requirements and provisions hereof. Lessee agrees to
obtain from a responsible insurance company, or companies, at its expense, public liability insurance in an amount not less than ONE MILLION ($1,000,000.00)
DOLLARS with respect to any one accident and FIVE HUNDRED THOUSAND ($500,000.00) DOLLARS property damage with respect to any one accident, and
a certificate as to such insurance shall be deposited with Lessor.
8 . Non-Liability of Lessor: None of the provisions of this Lease shall operate to waive any protections or immunities from suit or liability that the
Lessor is entitled to as a municipal entity under Illinois or Federal law.
9 . Water, Gas and Electric Charges : Lessee will pay, in addition to the rent above specified, all water rents, gas and electric light and power bills
taxed, levied or charged on the Premises, for and during the time for which this Lease is granted, and in case said water rents and bills for gas, electric light and
power shall not be paid when due, Lessor shall, upon three days notice to Lessee have the right to pay the same, which amounts so paid are declared to be so
much additional rent and payable with the installment of rent next due thereafter. Such services shall be separately metered.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10. Lessor’s Access to Premises: Lessor and its designees shall have the right, upon reasonable notice to Lessee, to enter upon the Premises at all
reasonable hours (and in emergencies at all times and without notice): (a) to inspect the same; (b) to make repairs, additions or alterations to the Premises or
the building in which the same are located or any property owned or controlled by Lessor; provided, however, if Lessor intends to be reimbursed by Lessee for
any such repairs, additions or alterations, it shall so notify Lessee at least fourteen (14) days prior to taking any such action in order for Lessee to determine
whether it is responsible for any such repairs, additions or alterations.
11. Option Period: Lessee has the right to extend the Lease term for three (3) consecutive 12 month periods. The annual rent escalation for each of
the one year option periods will continue to be determined in the manner utilized during the initial 36 month Lease term. Responsibility for real estate taxes will
continue to be determined in the manner utilized during the initial 36 month Lease term. Lessee must provide written notice to Lessor of its intent to exercise this
option to extend the lease for a 12 month period at least six (6) months prior to the expiration of the term of the Lease. Notice must be provided in conformance
with paragraph 25.
12. Abandonment and Reletting: If Lessee shall abandon or vacate the Premises, or if Lessee’s right to occupy the Premises is terminated by Lessor
by reason of Lessee’s breach of any of the covenants herein, the same may be re-let by Lessor for such rent and upon such terms as Lessor may reasonably
deem fit, subject to Illinois statute; and if a sufficient sum shall not thus be realized monthly, after paying the out-of-pocket expenses of such re-letting and
collecting to satisfy the rent hereby reserved. Lessee agrees to satisfy and pay all deficiencies monthly during the remaining period of this Lease. Lessor shall
exercise reasonable efforts to obtain a new lessee to occupy the Premises following abandonment or vacation thereof by Lessee at a rate of rental then
prevailing in the Burr Ridge area and upon such other lease terms as are herein contained. Upon abandonment or vacation of the Premises, Lessee’s obligation
is to restore the Premises to its original condition at the commencement of this Lease and return the Premises to Lessor in good condition and repair, provided,
however, Lessee shall not be required to remove any improvements to the Premises approved by Lessor (unless such improvements are special or unique to
Lessee’s business, as reasonably determined by Lessor, and are so conditioned by Lessor). Lessee shall be solely responsible for the complete removal of any
outside storage tank(s) and restoration of the affected location of the tank(s).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1 3 . Hazards and Hazardous Substances: Lessor hereby represents that no hazardous materials exist on, within, or under the Premises as of the
commencement of Lessee’s occupancy hereunder in violation of applicable environmental requirements under local, Illinois or Federal law. Lessee shall not
cause or permit any hazardous material to be brought upon, or kept or used in or about the premises by Lessee, its agents, employees, contractors, or invitees,
without the prior written consent of Lessor, (which consent Lessor shall not unreasonably withhold) so long as Lessee demonstrates to Lessor’s reasonable
satisfaction that such hazardous material is necessary or useful to Lessee’ s business and will be used, kept, and stored and disposed of in a manner that
complies with all laws, rules, statutes, and ordinances regulating any such hazardous material so brought upon or used or kept in or about the Premises. Lessor
consents to Lessee’s use and storage of materials which are determined to be hazardous in reasonable quantities on the Premises so long as such materials are
necessary or appropriate in connection with Lessee’s manufacturing and warehousing uses on the Premises. If Lessee or Lessor breach their respective
representations or obligations stated above in this paragraph, or if the presence of hazardous material on or about the Premises caused or permitted by Lessee
or Lessor results in contamination of the Premises or Lessor’s adjacent property, or if contamination of the Premises or surrounding area by hazardous material
otherwise occurs the responsible party (Lessee or Lessor) shall indemnify, defend, and hold harmless the other from any and all claims, judgments, damages,
penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Premises or Lessor’s adjacent property, or the entire building,
damages for the loss or restriction on the use of rentable or usable space or of any amenity of the Premises or Lessor’s adjacent property, damages arising from
any adverse impact on marketing of space in the building, and sum paid in settlement of claims, reasonable attorneys’ fees, reasonable consultant fees and
expert fees) that arise during or after the term of this Lease as a result of that contamination. This indemnification includes, without limitation, reasonable costs
incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state, or local
governmental agency or political subdivision because of hazardous material present in the soil or ground water on, under or about the Premises or Lessor’s
adjacent property. Without limiting the above, if the presence of any hazardous material on or about the Premises caused or permitted by either Lessor or
Lessee results in any contamination of the Premises or surrounding area, or causes the Premises or surrounding area to be in violation of any laws, rules,
statutes, or ordinances, the responsible party (Lessee or Lessor) shall promptly take all actions at its sole expense as are necessary to return the Premises and
surrounding area to the condition existing before the introduction of any such hazardous material: provided that, if Lessee is responsible, Lessor’s approval of
those actions shall first be obtained, which approval shall not be unreasonably withheld so long as those actions would not potentially have any material adverse
long-term or short-term effect on the Premises or surrounding area.
As used in this Lease, the term “hazardous material” means any hazardous or toxic substance, material or waste which is or becomes regulated by any
local governmental authority, the state of Illinois, or the United States government, including any material which, when present, would require environmental
remediation (“clean-up”) under any such local, Illinois or Federal law. Lessee shall not allow, keep or use on the Premises any inflammable or explosive liquids
or materials save such as may be necessary for use in the business of the Lessee, and in such case, any such substances shall be delivered and stored in
amount, and used, in accordance with the rules for the applicable Board of Underwriters and statutes and ordinances now or hereafter in force. Further, no
unlawful activities of any kind shall be conducted by Lessee on the Premises.
Nothing in this paragraph 13 shall be construed to impose any additional liability whatsoever upon either of the parties hereto as a result of any acts or
omissions of any third parties, specifically including any tenants leasing other space from Lessor.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1 4 . Default by Lessee : If Lessee shall vacate or abandon the Premises, or in case of the non-payment of the rent reserved hereby, or any part
thereof, or of the breach of any covenant in this Lease, Lessee’s right to the possession of the Premises thereupon shall terminate upon written notice to Lessee
from Lessor and upon Lessee’s failure to cure any such default within sixty (60) days of receipt of such notice, and the mere retention of possession thereafter
by Lessee shall constitute a forcible detainer of the Premises; and if the Lessor so elects, but not otherwise, and upon written notice of such election to Lessee,
this Agreement shall thereupon terminate, and upon the termination of Lessee’s right of possession, as aforesaid, whether this Agreement be terminated or not.
Lessee agrees to surrender possession of the Premises immediately, without the receipt of any demand for rent, notice to quit or demand for possession of the
Premises whatsoever, and hereby grants to Lessor full and free license to enter into and upon the Premises or any part thereof, to take possession thereof after
due process of law, and to expel and to remove Lessee or any other person who may be occupying the Premises or any part thereof, and Lessor may
repossess itself of the Premises as of its former estate, but such entry of the Premises shall not constitute a trespass or foreible entry or detainer, nor a waiver of
any covenants, agreement or promise in this Agreement contained, to be performed by Lessee. The acceptance of rent, whether in a single instance or
repeatedly, after it falls due. or after knowledge of any breach hereof by Lessee, or the giving or making of any notice or demand, whether according to any
statutory provision or not, or any act or series of acts except as an express written waiver, shall not be construed as a waiver of Lessor’s rights hereunder, or as
an election not to proceed under the provisions of this Agreement.
15. Real Estate Taxes: Lessor is responsible for the base real estate taxes during the Lease term. The base real estate taxes for the 2009 tax year
are $____________. Following the base year of 2009, the Lessor is subsequently responsible for the base real estate taxes plus an amount not to exceed 3%
escalation of the base taxes. Lessor’s obligation cannot increase more than 3% over the base taxes plus escalation amount of the prior year in any subsequent
year. Following the first year. Lessee will be responsible for that portion of annual increases in real estate taxes for each subsequent year which exceeds the
base year taxes plus a 3% escalation of that base amount, as set forth herein. Lessee’s share shall be based on the actual increase in taxes each year, not on
its prior year’s payment or share. Lessee’s payment, as required hereunder, shall be due upon issuance of the final tax bill for the second installment of taxes
each year, within thirty (30) days of receipt of notice from Lessor, along with a copy of the tax bill and a reasonably itemized statement by the Village showing
the calculation by which Lessee’s share of such tax bill was determined. Nothing in this paragraph shall limit Lessor or Lessee in the exercise of any rights
afforded by Illinois law to challenge any assessment amount arrived at by the Assessor/County Clerk provided that any such challenge shall not delay or excuse
the payment obligations of Lessor and Lessee set forth above.
1 6 . No Rent Deduction or Set Off : Lessee’s covenant to pay rent is and shall be independent of each and every other covenant of this Lease.
Lessee agrees that any claim by Lessee against Lessor shall not be deducted from rent nor set off against any claim for rent in any action.
1 7 . Security Deposit: The security deposit required herein shall be available to Lessor for its use or reimbursement to satisfy any of Lessee’s
obligations hereunder, if Lessee shall fail to meet or abide by such obligations. Lessor shall otherwise be allowed to use such security deposit monies as
permitted by law.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1 8 . Rent after Notice or Suit: It is further agreed, by the parties hereto, that after the service of notice, or the commencement of a suit or after final
judgment for possession of the Premises. Lessor may receive and collect any rent due, and the payment of said rent shall not waive or affect said notice, said
suit, or said judgment.
19. Payment of Costs: Lessee will pay and discharge all reasonable costs, attorney’s fees and expenses that shall be made and incurred by Lessor
in enforcing the covenants and agreements of this Lease.
2 0 . Rights Cumulative: The rights and remedies of Lessor under this Lease are cumulative. The exercise or use of any one or more thereof shall
not bar Lessor from exercise or use of any other right or remedy provide herein or otherwise provided by law, nor shall exercise nor use of any right or remedy
by Lessor waive any other right or remedy.
2 1 . Fire and Casualty: In the event the Premises are substantially damaged by fire or other casualty, Lessor shall, within sixty (60) days, notify
Lessee in writing as to whether said Premises will be rebuilt or repaired, and in the event Lessor fails to so notify Lessee, Lessee may, at its option, terminate
this Agreement by giving written notice to Lessor within ten (10) days after the expiration of said sixty (60) days. If Lessor so notifies Lessee that the Premises
will be rebuilt or repaired, then this Agreement shall continue in effect upon the same terms and conditions; provided, however, if Lessor fails to rebuild or repair
said Premises within sixty (60) days following the expiration of the sixty (60) day period in which Lessor must notify Lessee of such action, then Lessee may
terminate this Agreement upon written notice to Lessor; and provided further, if Lessor so notifies Lessee that the Premises will be rebuilt or repaired, Lessee
may, at its option, terminate this Agreement by giving written notice to Lessor within sixty (60) days after Lessor has so notified Lessee. If Lessor notifies Lessee
that the Premises will not be rebuilt or repaired, and same are, in fact, not rebuilt or repaired within 180 days after the occurrence of the fire or other casualty,
then this Agreement shall forthwith terminate. The fixed or basic rent herein reserved shall abate during the time that the Premises is untenantable. In the event
of insubstantial damage to the Premises by fire or other casualty, said Premises shall be promptly restored or repaired by Lessor, and a just and proportionate
part of the fixed or basic rent herein specified shall abate until said Premises have been fully restored or repaired.
2 2 . Right to Cure Defaults: If either party shall fail to comply fully with any of its obligations under this Lease (including, without limitation, its
obligations to make repairs, maintain various policies of insurance, comply with all laws, ordinances and regulations and pay all bills for utilities), then the non-
defaulting party shall give notice to the defaulting party regarding the nature and extent of such default and the defaulting party will have sixty (60) days to cure
any such default, and if it fails to cure such default, then the non-defaulting party shall have the right, at its option, to cure such breach at the other party’s
expense. Each party agrees to reimburse the other (as additional rental or otherwise) for all costs and expenses incurred as a result thereof together with
interest thereon promptly upon demand.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2 3 . Severability: Wherever possible each provision of this Lease shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Lease shall be prohibited by or invalid under applicable law, such provisions shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Lease.
2 4 . Relationships of Parties: Nothing contained in this Agreement shall be construed to create the relationship of principal and agent, partnership,
joint venture or any other relationship between the parties hereto other than the relationship of Lessor and Lessee.
2 5 . Notices: Every notice. approval, consent or other communication authorized or required by this Agreement shall not be effective unless served
in writing and sent by United Stales registered or certified mail, return receipt requested, directed, if to Lessee to the Premises, and if to Lessor at the address
listed on page 1 hereof or such other address as either party may designate by notice from time to time.
2 6 . Waiver: One or more waivers of any covenant or condition by either party hereto shall not be construed as a wavier of a subsequent breach of
the same or any other covenant or condition, and the consent or approval by one party to or of any act by the other party requiring the consenting party’s
consent or approval shall not be construed to waive or render unnecessary the consenting party’s consent or approval to or of any subsequent similar act.
2 7 . Entire Agreement: No oral statement or prior written matter shall have any force or effect all of which shall merge herein and be superseded
hereby. No waiver of any provision of this Agreement shall be effective unless in writing, signed by the waiving party. The parties agree that they are not relying
on any representations or agreements other than those contained in this Agreement. This Agreement shall not be modified except by a writing subscribed by all
parties, nor may this Agreement be canceled by either party except with the written consent of the other, unless otherwise specifically provided herein. The
invalidity or unenforceability of any provisions of this Agreement shall not affect or impair any other provision, All captions herein are solely for convenience and
shall not be given any legal effect.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Except as otherwise provided in this Agreement, the covenants, conditions and agreements contained in this Agreement shall bind and inure to the
benefit of Lessor and Lessee and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereby set their hands and seals.
LESSOR:
LESSEE:
VILLAGE OF BURR RIDGE
Cook and DuPage Counties, Illinois
NANOPHASE TECHNOLOGIES CORORATION
DuPage County, Illinois
Mayor
ATTEST:
Clerk
President
ATTEST:
Secretary
Dated:
4-8-10
Dated:
4/2/10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation - 10-K
Exhibit 10.51
DATE OF LEASE
MARCH 13, 2017
BUILDING LEASE
TERM OF LEASE
Beginning Ending
9/15/2017 9/15/2021
BASE RENT AMOUNT
$176,382.00 for first year
LOCATION OF PREMISES:
451 Commerce
Burr Ridge, Illinois
Security Deposit:
$ 10,000.00
DESCRIPTION OF PREMISES: The property being leased hereunder is as depicted upon That diagram/site plan attached hereto as Exhibit A, together with
those rights of ingress, egress, storage and loading set forth herein.
LESSEE
LESSOR
Name: Nanophase Technologies Corporation
Name: Village of Burr Ridge
Address: 451 Commerce
Burr Ridge, IL
Address: 7660 S. County Line Rd.
Burr Ridge, IL 60521
In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor, the
premises designated above (the “Premises”), together with the appurtenances thereto, for the above Term.
1. Rent: Lessee shall pay Lessor the base rent amount of $176,382.00, which consists of $8.82/square foot for 20,000 square feet, in twelve (12)
equal installments in the amount of Fourteen Thousand Six Hundred Ninety-Eight and 50/100 Dollars ($14,698.50) as rent for the Premises, at Lessor’s address
as shown above, payable on or before the 15th of each calendar month. The first monthly payment, and the security deposit in the amount of $10,000 shall be
due on or before September 15, 2017. Rent shall continue to be due monthly for the term of this Lease to be calculated based upon the following: for each year
after the first year of this Lease, the base rental amount of $176,382.00 will increase annually by that percentage equal to the annual percentage increase for the
preceding twelve (12) months in the Consumer Price Index, (Chicago-All Items for all Urban Wage Earners and Clerical Workers) (CPI-W) or an amount of 3%
annually, whichever is greater.
2 . Improvements: Lessee shall be responsible for any improvements to the Premises, including, for example, carpeting, lighting and fixtures,
partitions or ceiling enhancements, provided that any alteration or addition to the Premises by Lessee requires the prior written consent of Lessor. Said consent
will not be unreasonably withheld by Lessor.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3 . Condition and Upkeep of Premises: Lessee has examined and knows the condition of the Premises and has received the same in good order
and repair, and acknowledges that no representations as to the condition and repair thereof have been made by Lessor, or his agent, prior to or at the execution
of this Lease that are not herein expressed; Lessee will keep the Premises including all appurtenances, in good repair, replacing all broken glass and all
damaged plumbing fixtures with others of equal quality, and will keep the Premises, including adjoining areas, in a clean and healthful condition according to the
applicable municipal ordinances during the term of this Lease at Lessee’s expense. Lessor will remove all snow and ice from the roof when necessary, and will
be responsible for snow removal, as needed, from the sidewalk abutting the Premises and parking lot serving the Premises. Upon the termination of this Lease,
for any reason, Lessee will yield up the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear excepted. Lessor has responsibility for
upkeep of all areas on the exterior of building, including, but not limited to the roof, parking area, grass area, sidewalks and exterior walls. Lessee has
responsibility for upkeep of all elements on the interior of the space within the Premises, including, but not limited to, plumbing, electric, and H.V.A.C. equipment
and facilities. Lessor represents that the plumbing, electric, gas and H.V.A.C. equipment and facilities is in good working order at the commencement of this
lease. Lessor shall not be obliged to incur any other expense for repairing any improvements upon said demised premises or connected therewith, and the
Lessee at his own expense will keep all improvements in good repair (injury by fire, or other causes beyond Lessee’s control excepted) as well as in a good
tenantable and wholesome condition, and will comply with all local or general regulations, laws and ordinances applicable thereto. If Lessee does not make
repairs as required hereunder promptly and adequately, Lessor may, but need not make such repairs and pay the costs thereof, and such costs shall be so much
additional rent immediately due from and payable by Lessee to Lessor. Lessee is obligated to provide Lessor prompt notice of any necessary repairs for which
Lessor may be responsible.
4 . Lessee’s Access to Premises: Lessee shall have rights of reasonable ingress and egress to the Premises over the paved portions and
sidewalks on Lessor’s property as well as ingress and egress rights over Lessor’s property to access Lessee’s loading dock and shared use of Lessor’s paved
parking area. Lessee shall also be entitled to reasonable use of that area needed to the south of the Premises to locate its outside storage tank(s). The storage
tank(s) shall be located generally in that area depicted for such use on Exhibit A. Lessee agrees to locate and install said tank(s) in a neat and orderly fashion.
Lessee shall petition the Village of Burr Ridge or other applicable governmental entity for any variations(s) or permit(s) that may be needed to lawfully locate,
construct and/or operate such tanks, Lessor acknowledges that said storage tanks are an integral part of Lessee’s use of the Premises. If such permit, variation
or approval as is needed to permit the lawful construction and use of such tanks is denied by the governmental entity with jurisdiction, Lessee shall have the
option, within thirty (30) days after such denial, to terminate this Lease.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
5 . Lessee Not to Misuse; Sublet; Assignment: Lessee will not allow the Premises to be used for any purpose that will increase the rate of
insurance thereon for Lessor, and will not load floors with machinery or goods beyond the floor load rating prescribed by applicable governmental ordinances,
and will not allow the Premises to be occupied in whole, or in part, by any other person, and will not sublet the same or any part thereof, nor assign this Lease
without in each case the prior written consent of the Lessor first had, and Lessee will not permit any transfer by operation of law, mortgage or other
encumbrance of the interest in the Premises acquired through this Lease. Lessee will not permit the Premises to be used for any unlawful purpose, or for any
purpose that will injure the reputation of the building or increase the fire hazard of the building, or disturb the neighborhood, provided however, it is understood
and acknowledged by Lessor that Lessee will conduct certain warehousing and manufacturing activities on the Premises and such activities shall be permitted if
in compliance with applicable federal, state and local law. Lessee will not allow any signs, cards or placards to be posted, or placed thereon, nor permit any
alteration of or addition to any part of the Premises, except by written consent of Lessor which consent would not be unreasonably withheld; all alterations and
additions to the Premises shall remain for the benefit of Lessor unless otherwise provided in the consent aforesaid. Lessor represents that the Premises are
currently zoned for Lessee’ s manufacturing, warehousing and office uses.
6 . Mechanic’s Lien: Lessee will not permit any mechanic’s lien or liens to be placed upon the Premises or any building or improvement thereon
during the term hereof, and in case of the filing of such lien Lessee will promptly pay same. If a default in payment shall continue for thirty (30) days after written
notice to Lessee from Lessor to the Lessee, the Lessor shall have the right and privilege at Lessor’s option of paying the same or any portion of the lien amount
without inquiry as to its validity, and any amounts so paid, including expenses and interest, shall be so much additional indebtedness hereunder due from Lessee
to Lessor and shall be repaid to Lessor immediately on tender of bill the lien costs.
7 . Indemnify for Accidents: Lessee covenants and agrees that it will protect and save and keep the Lessor forever harmless and indemnified
against and from any penalty or damages or charges imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Lessee or those
holding under Lessee, and that Lessee will at all times protect, indemnify and save and keep harmless the Lessor against and from any and all loss, cost,
damage or expense, arising out of or from any accident or other occurrences on or about the Premises, causing injury to any person or property whomsoever or
whatsoever and will protect, indemnify and save and keep harmless the Lessor against and from any and all claims and against and from any and all loss, cost,
damage or expense arising out of any failure of Lessee in any respect to comply with and perform all the requirements and provisions hereof. Lessee agrees to
obtain from a responsible insurance company, or companies, at its expense, public liability insurance in an amount not less than ONE MILLION ($1,000,000.00)
DOLLARS with respect to any one accident and FIVE HUNDRED THOUSAND ($500,000.00) DOLLARS property damage with respect to any one accident, and
a certificate as to such insurance shall be deposited with Lessor.
8 . Non-Liability of Lessor: None of the provisions of this Lease shall operate to waive any protections or immunities from suit or liability that the
Lessor is entitled to as a municipal entity under Illinois or Federal law.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
9. Water, Gas and Electric Charges : Lessee will pay, in addition to the rent above specified, all water rents, gas and electric light, and power bills
taxed, levied or charged on the Premises, for and during the time for which this Lease is granted, and in case said water rents and bills for gas, electric light and
power shall not be paid when due, Lessor shall, upon three days notice to Lessee have the right to pay the same, which amounts so paid are declared to be so
much additional rent and payable with the installment of rent next due thereafter. Such services shall be separately metered.
10. Lessor’s Access to Premises: Lessor and its designees shall have the right, upon reasonable notice to Lessee, to enter upon the Premises at
all reasonable hours (and in emergencies at all times and without notice): (a) to inspect the same; (b) to make repairs, additions or alterations to the Premises or
the building in which the same are located or any property owned or controlled by Lessor; provided, however, if Lessor intends to be reimbursed by Lessee for
any such repairs, additions or alterations, it shall so notify Lessee at least fourteen (14) days prior. to taking any such action in order for Lessee to determine
whether it is responsible for any such repairs, additions or alterations. Lessor shall also have the right to utilize the unused portion of the area designated on
Exhibit A as the “OUTSIDE STORAGE TANK AREA”, (“AREA”) including ingress and egress to and across such AREA, for its Public Works’ operations. Prior to
such use of the AREA, Lessor agrees, at Lessor’s expense, to install a chain link security fence around that portion of the AREA currently used by Lessee for its
storage tank(s). Lessor agrees to construct the fence in compliance with applicable IEPA standards and requirements regarding the security of Lessee’s existing
storage tank(s) in the AREA. In the event Lessor constructs said fence, Lessee shall be allowed continued access, as may be needed, to maintain its HVAC
equipment and storage tank(s) in the AREA.
11. Option Period: Lessee has the right to extend the Lease term for three (3) consecutive 12 month periods. The annual rent escalation for each
of the one year option periods will continue to be determined in the manner utilized during the initial 48 month Lease term. Responsibility for real estate taxes
will continue to be determined in the manner utilized during the initial 36 month Lease term. Lessee must provide written notice to Lessor of its intent to exercise
this option to extend the lease for a 12 month period at least six (6) months prior to the expiration of the term of the Lease. Notice must be provided in
conformance with paragraph 25.
1 2 . Abandonment and Reletting: If Lessee shall abandon or vacate the Premises, or if Lessee’ s right to occupy the Premises is terminated by
Lessor by reason of Lessee’s breach of any of the covenants herein, the same may be re-let by Lessor for such rent and upon such terms as Lessor may
reasonably deem fit, subject to Illinois statute; and if a sufficient sum shall not thus be realized monthly, after paying the out-of-pocket expenses of such re-letting
and collecting to satisfy the rent hereby reserved, Lessee agrees to satisfy and pay all deficiencies monthly during the remaining period of this Lease. Lessor
shall exercise reasonable efforts to obtain a new lessee to occupy the Premises following abandonment or vacation thereof by Lessee at a rate of rental then
prevailing in the Burr Ridge area and upon such other lease terms as are herein contained. Upon abandonment or vacation of the Premises, Lessee’s obligation
is to restore the Premises to its original condition at the commencement of this Lease and return the Premises to Lessor in good condition and repair, provided,
however, Lessee shall not be required to remove any improvements to the Premises approved by Lessor (unless such improvements are special or unique to
Lessee’s business, as reasonably determined by Lessor, and are so conditioned by Lessor). Lessee shall be solely responsible for the complete removal of any
outside storage tank(s) and restoration of the affected location of the tank(s).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1 3 . Hazards and Hazardous Substances: Lessor hereby represents that it has not brought or caused any hazardous materials to exist on, within,
or under the Premises as of the commencement of Lessee’s occupancy hereunder in violation of applicable environmental requirements under local, Illinois or
Federal law. Lessee shall not cause or permit any hazardous material to be brought upon, or kept or used in or about the premises by Lessee, its agents,
employees, contractors, or invitees, without the prior written consent of Lessor, (which consent Lessor shall not unreasonably withhold) so long as Lessee
demonstrates to Lessor’s reasonable satisfaction that such hazardous material is necessary or useful to Lessee’ s business and will be used, kept, and stored
and disposed of in a manner that complies with all laws, rules, statutes, and ordinances regulating any such hazardous material so brought upon or used or kept
in or about the Premises. Lessor consents to Lessee’s use and storage of materials which are determined to be hazardous in reasonable quantities on the
Premises so long as such materials are necessary or appropriate in connection with Lessee’s manufacturing and warehousing uses on the Premises. If Lessee
or Lessor breach their respective representations or obligations stated above in this paragraph, or if the presence of hazardous material on or about the
Premises caused or permitted by Lessee or Lessor results in contamination of the Premises or Lessor’s adjacent property, or if contamination of the Premises or
surrounding area by hazardous material otherwise occurs the responsible party (Lessee or Lessor) shall indemnify, defend, and hold harmless the other from
any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Premises or Lessor’s
adjacent property, or the entire building, damages for the loss or restriction on the use of rentable or usable space or of any amenity of the Premises or Lessor’s
adjacent property, damages arising from any adverse impact on marketing of space in the building, and sum paid in settlement of claims, reasonable attorneys’
fees, reasonable consultant fees and expert fees) that arise during or after the term of this Lease as a result of that contamination. This indemnification includes,
without limitation, reasonable costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work
required by any federal, state, or local governmental agency or political subdivision because of hazardous material present in the soil or ground water on, under
or about the Premises or Lessor’s adjacent property. Without limiting the above, if the presence of any hazardous material on or about the Premises caused or
permitted by either Lessor or Lessee results in any contamination of the Premises or surrounding area, or causes the Premises or surrounding area to be in
violation of any laws, rules, statutes, or ordinances, the responsible party (Lessee or Lessor) shall promptly take all actions at its sole expense as are necessary
to return the Premises and surrounding area to the condition existing before the introduction of any such hazardous material; provided that, if Lessee is
responsible, Lessor’s approval of those actions shall first be obtained, which approval shall not be unreasonably withheld so long as those actions would not
potentially have any material adverse long-term or short-term effect on the Premises or surrounding area.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As used in this Lease, the term “hazardous material” means any hazardous or toxic substance, material or waste which is or becomes regulated by any
local governmental authority, the state of Illinois, or the United States government, including any material which, when present, would require environmental
remediation (“clean-up”) under any such local, Illinois or Federal law. Lessee shall not allow, keep or use on the Premises any inflammable or explosive liquids
or materials save such as may be necessary for use in the business of the Lessee, and in such case, any such substances shall be delivered and stored in
amount, and used, in accordance with the rules for the applicable Board of Underwriters and statutes and ordinances now or hereafter in force. Further, no
unlawful activities of any kind shall be conducted by Lessee on the Premises.
Nothing in this paragraph 13 shall be construed to impose any additional liability whatsoever upon either of the parties hereto as a result of any acts or
omissions of any third parties, specifically including any tenants leasing other space from Lessor.
1 4 . Default by Lessee : If Lessee shall vacate or abandon the Premises, or in case of the non-payment of the rent reserved hereby, or any part
thereof, or of the breach of any covenant in this Lease, Lessee’s right to the possession of the Premises thereupon shall terminate upon written notice to Lessee
from Lessor and upon Lessee’s failure to cure any such default within sixty (60) days of receipt of such notice, and the mere retention of possession thereafter
by Lessee shall constitute a forcible detainer of the Premises; and if the Lessor so elects, but not otherwise, and upon written notice of such election to Lessee,
this Agreement shall thereupon terminate, and upon the termination of Lessee’s right of possession, as aforesaid, whether this Agreement be terminated or not,
Lessee agrees to surrender possession of the Premises immediately, without the receipt of any demand for rent, notice to quit or demand for possession of the
Premises whatsoever, and hereby grants to Lessor full and free license to enter into and upon the Premises or any part thereof, to take possession thereof after
due process of law, and to expel and to remove Lessee or any other person who may be occupying the Premises or any part thereof, and Lessor may
repossess itself of the Premises as of its former estate, but such entry of the Premises shall not constitute a trespass or forcible entry or detainer, nor a waiver of
any covenants, agreement or promise in this Agreement contained, to be performed by Lessee. The acceptance of rent, whether in a single instance or
repeatedly, after it falls due, or after knowledge of any breach hereof by Lessee, or the giving or making of any notice or demand, whether according to any
statutory provision or not, or any act or series of acts except as an express written waiver, shall not be construed as a waiver of Lessor’s rights hereunder, or as
an election not to proceed under the provisions of this Agreement.
1 5 . Real Estate Taxes: Lessor is responsible for the base real estate taxes during the Lease term. The base real estate taxes for the 2015 tax
year are $2,180.26. Following the base year of 2015, the Lessor is subsequently responsible for the base real estate taxes plus an amount not to exceed 3%
escalation of the base taxes. Lessor’s obligation cannot increase more than 3% over the base taxes plus escalation amount of the prior year in any subsequent
year. Following the first year, Lessee will be responsible for that portion of annual increases in real estate taxes for each subsequent year which exceeds the
base year taxes plus a 3% escalation of that base amount, as set forth herein. Lessee’s share shall be based on the actual increase in taxes each year, not on
its prior year’s payment or share. Lessee’s payment, as required hereunder, shall be due upon issuance of the final tax bill for the second installment of taxes
each year, within thirty (30) days of receipt of notice from Lessor, along with a copy of the tax bill and a reasonably itemized statement by the Village showing
the calculation by which Lessee’s share of such tax bill was determined. Nothing in this paragraph shall limit Lessor or Lessee in the exercise of any rights
afforded by Illinois law to challenge any assessment amount arrived at by the Assessor/County Clerk provided that any such challenge shall not delay or excuse
the payment obligations of Lessor and Lessee set forth above.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1 6 . No Rent Deduction or Set Off : Lessee’s covenant to pay rent is and shall be independent of each and every other covenant of this Lease.
Lessee agrees that any claim by Lessee against Lessor shall not be deducted from rent nor set off against any claim for rent in any action.
1 7 . Security Deposit: The security deposit required herein shall be available to Lessor for its use or reimbursement to satisfy any of Lessee’s
obligations hereunder, if Lessee shall fail to meet or abide by such obligations. Lessor shall otherwise be allowed to use such security deposit monies as
permitted by law.
18. Rent after Notice or Suit: It is further agreed, by the parties hereto, that after the service of notice, or the commencement of a suit or after final
judgment for possession of the Premises, Lessor may receive and collect any rent due, and the payment of said rent shall not waive or affect said notice, said
suit, or said judgment.
1 9 . Payment of Costs: Lessee will pay and discharge all reasonable costs, attorney’s fees and expenses that shall be made and incurred by
Lessor in enforcing the covenants and agreements of this Lease.
20. Rights Cumulative: The rights and remedies of Lessor under this Lease are cumulative. The exercise or use of any one or more thereof shall
not bar Lessor from exercise or use of any other right or remedy provide herein or otherwise provided by law, nor shall exercise nor use of any right or remedy
by Lessor waive any other right or remedy.
2 1 . Fire and Casualty: In the event the Premises are substantially damaged by fire or other casualty, Lessor shall, within sixty (60) days, notify
Lessee in writing as to whether said Premises will be rebuilt or repaired, and in the event Lessor fails to so notify Lessee, Lessee may, at its option, terminate
this Agreement by giving written notice to Lessor within ten (10) days after the expiration of said sixty (60) days. If Lessor so notifies Lessee that the Premises
will be rebuilt or repaired, then this Agreement shall continue in effect upon the same terms and conditions; provided, however, if Lessor fails to rebuild or repair
said Premises within sixty (60) days following the expiration of the sixty (60) day period in which Lessor must notify Lessee of such action, then Lessee may
terminate this Agreement upon written notice to Lessor; and provided further, if Lessor so notifies Lessee that the Premises will be rebuilt or repaired, Lessee
may, at its option, terminate this Agreement by giving written notice to Lessor within sixty (60) days after Lessor has so notified Lessee. If Lessor notifies Lessee
that the Premises will not be rebuilt or repaired, and same are, in fact, not rebuilt or repaired within 180 days after the occurrence of the fire or other casualty,
then this Agreement shall forthwith terminate. The fixed or basic rent herein reserved shall abate during the time that the Premises is untenantable. In the event
of insubstantial damage to the Premises by fire or other casualty, said Premises shall be promptly restored or repaired by Lessor, and a just and proportionate
part of the fixed or basic rent herein specified shall abate until said Premises have been fully restored or repaired.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2 2 . Right to Cure Defaults: If either party shall fail to comply fully with any of its obligations under this Lease (including, without limitation, its
obligations to make repairs, maintain various policies of insurance, comply with all laws, ordinances and regulations and pay all bills for utilities), then the non-
defaulting party shall give notice to the defaulting party regarding the nature and extent of such default and the defaulting party will have sixty (60) days to cure
any such default, and if it fails to cure such default, then the non-defaulting party shall have the right, at its option, to cure such breach at the other party’s
expense. Each party agrees to reimburse the other (as additional rental or otherwise) for all costs and expenses incurred as a result thereof together with
interest thereon promptly upon demand.
23. Severability: Wherever possible each provision of this Lease shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Lease shall be prohibited by or invalid under applicable law, such provisions shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Lease.
24. Relationships of Parties: Nothing contained in this Agreement shall be construed to create the relationship of principal and agent, partnership,
joint venture or any other relationship between the parties hereto other than the relationship of Lessor and Lessee.
25. Notices: Every notice, approval, consent or other communication authorized or required by this Agreement shall not be effective unless served
in writing and sent by United States registered or certified mail, return receipt requested, directed, if to Lessee to the Premises, and if to Lessor at the address
listed on page 1 hereof or such other address as either party may designate by notice from time to time.
26. Waiver: One or more waivers of any covenant or condition by either party hereto shall not be construed as a wavier of a subsequent breach of
the same or any other covenant or condition, and the consent or approval by one party to or of any act by the other party requiring the consenting party’s
consent or approval shall not be construed to waive or render unnecessary the consenting party ’s consent or approval to or of any subsequent similar act.
2 7 . Entire Agreement: No oral statement or prior written matter shall have any force or effect all of which shall merge herein and be superseded
hereby. No waiver of any provision of this Agreement shall be effective unless in writing, signed by the waiving party. The parties agree that they are not relying
on any representations or agreements other than those contained in this Agreement. This Agreement shall not be modified except by a writing subscribed by all
parties, nor may this Agreement be canceled by either party except with the written consent of the other, unless otherwise specifically provided herein. The
invalidity or unenforceability of any provisions of this Agreement shall not affect or impair any other provision. All captions herein are solely for convenience and
shall not be given any legal effect.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Except as otherwise provided in this Agreement, the covenants, conditions and agreements contained in this Agreement shall bind and inure to the
benefit of Lessor and Lessee and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereby set their hands and seals.
LESSOR:
LESSEE:
VILLAGE OF BURR RIDGE
Cook and DuPage Counties, Illinois
NANOPHASE TECHNOLOGIES CORORATION
DuPage County, Illinois
President
ATTEST:
Clerk
Dated:
President
ATTEST:
Secretary
3-14-17
Dated:
2/27/17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation - 10-K
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements (No. 333-53445, No. 333-74170, No. 333-119466, No. 333-150765, and 333-
187649) on Form S-8 and Registration Statements (No. 333-90326, No. 333-116224, No. 333-140461, and 333-163363) on Form S-3, of Nanophase
Technologies Corporation of our report dated March 29, 2017 relating to our audit of the financial statements, which appears in this Annual Report on Form 10-K
of Nanophase Technologies Corporation for the year ended December 31, 2016.
/s/ RSM US LLP
Schaumburg, Illinois
March 29, 2017
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation - 10-K
Exhibit 31.1
Certification of the Chief Executive Officer
Pursuant to
Rules 13a-14(a) and 15d-14(a) under the Exchange Act
I, Jess A. Jankowski, certify that:
1. I have reviewed this annual report on Form 10-K of Nanophase Technologies Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 29, 2017
/s/ JESS A. JANKOWSKI
Jess A. Jankowski
Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation - 10-K
Exhibit 31.2
Certification of the Chief Financial Officer
Pursuant to
Rules 13a-14(a) and 15d-14(a) under the Exchange Act
I, Frank J. Cesario, certify that:
1. I have reviewed this annual report on Form 10-K of Nanophase Technologies Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 29, 2017
/s/
FRANK J. CESARIO
Frank J. Cesario
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Nanophase Technologies Corporation - 10-K
Exhibit 32
Certification Pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with this annual report of Nanophase Technologies Corporation (the “Company”) on Form 10-K for the year ending December 31, 2016 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Jess A. Jankowski, Chief Executive Officer of the Company and Frank
J. Cesario, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to our knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: March 29, 2017
/s/ JESS A. JANKOWSKI
Jess A. Jankowski
Chief Executive Officer
/s/ FRANK J. CESARIO
Frank J. Cesario
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.