Competitor Analysis - ANO killing them off, page-24

Some information from Nanophase’sconference call Q12019 (16/05/2019)

Nanophase grew revenues by 30%, but keeps losing money (US$ 0.5mQ12019 vs US$ 0.9m Q12018). They had a big increasein their Solescense business (US$ 900k Q12019 vs US$ 60k Q12018). However, their“Personal care business” [basically ZnO and TiO2 for sun care and cosmetics] wasdown by US$ 300k. Their remaining cash balance is US$ 632k, compared to US$ 1.3mlast year. They had to issue 4.1 million shares for US$ 1.7m (12% dilution).

“Although we had a better bottom linein Q1 of 2019 than in Q1 of 2018, the last two reporting quarters havereflected a degree of growing pains that have been costly, and their impact hasbeen amplified by the drop in demand from our largest Personal Care Ingredientscustomer between 2018 and 2019.”

“Cash management has become more of an issuefor us than ever, as we try to manage our growth within our contractual andresource constraints. In that regard, we have been busy shoring upthe balance sheet.”

Zinc oxide market tailwinds…

“Now I’d like to get back to our key markets. Earlier,when I mentioned the reduction in Personal Care Ingredients volume this year, Isaid it was more discretely related to our customer, not weakness in themarkets for our products. To better explain, I’d like to spend a fewminutes discussing the demand in the markets we address with our minerals-basedskin- and sun-care ingredients. I’ll also discuss the strengths wesee relative to our position, both as an ingredient supplier, and throughSolésence finished products, in the market."

“The outlook for minerals-based sunscreens continues toimprove. I think that the underlying market dynamics continue tovalidate our broader strategy of focusing on the sun- and skin-care markets,and within that, the Solésence-specific strategy of delivering safe and effectiveprestige cosmetics that enhance people’s lives.

First, there has been a worldwide shortage of zinc oxide andtitanium dioxide, most noticeably to us beginning in early2018. Industry sources have been predicting a 300% increase indemand for zinc oxide, our primary mineral product, over the next five years.

We don’t know what share we can expect from that growth, but itcertainly supports our strategy. You may also recall that over thepast few years, some of the most common chemical sunscreens have also been banneddue to their environmental impacts. They are not considered safe foruse near coral reefs. This has been a positive for us in themarket.

Then, the Food and Drug Administration’s recent announcement ofthe 1^st new proposal, in decades, was issued on sunscreen ingredientsafety. There are 16 active ingredients currently listed onwhat the FDA calls the “Monograph.” This is the list of ingredients currentlyallowed to be used in human sunscreens in the United States. The FDAhas concluded that two of these ingredients are unsafe for humans, and that“there is not enough data” to determine if 12 more of these ingredients aresafe for human use.

Combined, those fourteen active ingredients represent all of theingredients currently allowed in the monograph that we refer to as“chemicals-based sunscreens.” They are our most significant marketcompetition, and they make up fourteen out of the sixteen of the ingredients inthe monograph. Zinc oxide and titanium dioxide, the two remainingoptions in the current monograph, are the only two that the FDA has deemed tobe safe for human use. This should be another big positive for us.”

In the conference call webcast (33’15”)the CEO mentions that one of the reasons for the drop in demand for their personalcare ingredients from BASF is because of some customer changes, among other reasons. I’m wondering who thoseother customers are…