Nanophase Techs Corp

Good day and thank you for standing by. Welcome to the Nanofaith Technologies fourth quarter and full year 2021 financial conference call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. To ask a question during the conference, you will need to press star, then one on your telephone. If you require any further assistance, Please press star, then zero. The words believe, expect, anticipate, plan, forecast, and similar expressions are intended to identify forward-looking statements. Statements contained in this news release that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect the company's current beliefs and a number of important factors could cause actual results for future periods to differ materially from those expressed in the team's release. These important factors include, without limitation, a decision of the customer to cancel a purchase order or supply agreement, demand for and acceptance of the company's personal care ingredients, advanced materials and formulated products, changes in development and distribution relationships, the impact of competitive products and technologies, possible disruption in commercial activities occasioned by public health issues, terrorist activities, and armed conflict, and other risks indicated in the company's filings with the Securities and Exchange Commission. Nanophase undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. I would now like to hand the call over to today's speaker, Mr. Jeff Janskowski, President and CEO. You may begin.

Thank you, Kanya. Good morning to all of those listening live and welcome to those who chose to listen later online. We're glad you could join us for our fourth quarter and full year 2021 investor call. Today's discussion will cover current results, the current state of the business, and some of our plans for 2022. Kevin Keratin, our Chief Operating Officer, will be joining me on the call today. It really was a great year. We are now a company that can sell everything we can make and more, which, while frustrating to a degree, puts us in a much different place than we've ever been. Our strategy remains on the mark. The markets we serve are demanding our products, and we've enhanced our liquidity and begun expanding our facilities to support a critical expansion. As I mentioned last time, We've been able to accomplish that most critical achievement for any growth company, particularly one like ours that is driven by new and disruptive technology. We've guided our companies, Nanophase and Celescence, to the point where business development and sales growth are not our biggest challenges anymore. We continue to be asked by our customers to ship more than we can make, which is an excellent problem to have. Last quarter, we told you that our greatest current challenges were enhancing and expanding capacity, managing working capital, and adding top people to our team. We also told you that these were all addressable challenges and typical ones that all fast-growing companies are faced with. Since that time, we've executed on several of our goals to make Nanophage and Solescence more capable, larger, and ultimately more profitable. In December, we leased a 260,000 square foot building that will allow us to consolidate a series of operations that have been limiting our throughput and efficiency In January, we closed on new financing to support our growing working capital demands, providing $6 million more in available capital. And between December 21 and today, we've filled two newly created leadership roles on our commercial team, as well as adding more than two dozen new team members across our manufacturing and supply chain functions. We have a lot of work to do in 2022. Some of it will be rugged, but in the end, with a degree of patience and good management, There are known ways to address the issues that we believe are holding us back. We're in a better spot than we've ever been in before. Now we have to execute. We remain optimistic about the future of our Celestin's finished products business and about the growing demand for minerals-based products and ingredients generally. If anything, over the past few years, trends toward broader consumer acceptance and desire for minerals-based skin health products have accelerated. Before I expand on this, let's cover some numbers. Unless identified otherwise, all numbers will be stated in approximate terms. Our Q4-21 revenue was $7.4 million, up by $2.5 million, or more than 50% when compared to the record revenue of $4.9 for the same period last year. Full-year 2021 revenue was up 72% at $29.5 million, compared with then-record revenue of $17.1 million for the same previous year. For the fourth quarter of 21, we had a net loss of 395,000 or one cent per share. This was down 590,000 or two cents per share compared to Q4 of 2020. For the full year 21, earnings were 2.3 million coming in at five cents per share. This represents an increase of 1.3 million in earnings or two cents per share over full year 2020 numbers. We generated 2.3 million in cash from operations in 2021 versus using $2.1 million in cash for operating activities in 2020, better than a $4 million improvement year over year. In 2020, we added $900,000 in capital equipment, followed by $1.9 million in additional equipment in 2021. These things are going to allow us to increase our throughput and then our profitability. In fact, earnings, cash flow from operations, And our new financing brought us to the point where our auditors agreed with our assessment that there was no longer a going concern risk for your company. Lifting this has been a critical achievement in that the going concern has been an impediment to financing as well as weakening our negotiating position in various circumstances. To tie up the discussion of the financials, I also wanted to disclose that during our annual audit, we determined that we had a material weakness in our internal controls relating to our inventory for the year. During this process, we were forced to spend an inordinate amount of time on completing a full physical inventory for 2021. Our inefficiencies here cost us in time, money, and opportunities to ship more product. This issue was closely related to the jump in 2021 sales volume. We stepped up to a new level of volume and complexity in our business, and the limitations within our existing controls and business systems were exposed. We were all very frustrated by this, mainly from the impact it had on our operations in the period of December through February. Undoubtedly, our sales and production were reduced during this period over what we expected. External factors compounded our issues and slowed production further. This was all due to several things. First, actually grinding through the physical inventory and then the related documentation took time. Then, we had lags in our supply chain, which kept raw materials from arriving on time. And lastly, December and January absences related to illness, probably due to the Omicron variant, took many key people out of critical roles in a situation where backups were hard to find. This spate of absences was more damaging than those related to COVID-19 had been in 2020 and the first three quarters of 2021. February was a better month, and March had us operating at a more normal level. Now let's shift gears to talk about our growth drivers. Celestin's products are still number one in driving current and expected future growth here. We had 18.2 million in Celestin sales for 2021, compared to 6.7 million last year, and 1.9 million for 2019. A triple triple. In a couple of minutes, Kevin will discuss specifics on our Celestin's growth and forward strategy. There's a lot more to come. In our personal care ingredient sales, which we often refer to as active pharmaceutical ingredients or APIs, we saw some nice growth in 2021 and we expect growth to continue in 2022. We had 7.7 million in API sales for the year compared to 5.5 million for the same period in 2020, an increase of 40%. APIs remain an important part of our business and we believe that the API business will grow by 30% or more in 2022. This should put volumes back in the $10 million annual range with some upside. Medical diagnostics and related life science applications represent our third and final strategic area of focus. These sales compose the majority of those reported in our advanced materials product category. This category also includes all of our legacy products for architectural coatings, surface treatment, and polishing. We had 3.6 million in advanced material sales in 2021 compared to 4.9 million for the same period in 2020. The majority of sales in this category represent medical diagnostics. During 2020 and into the first half of 21, the COVID-19 pandemic greatly accelerated our sales in this space. However, we saw a drop off in medical diagnostics for the second half of 2021. While we don't expect 2022 demand to reach the same levels as we've seen over the last couple of years, we do expect demand in this area to continue to exceed historic levels, which prior to 2020 were generally in the sub-$1 million range annually, sometimes a fraction of that. While volume was down a bit in 2021, we are committed to this market, as is our major customer in it. We also believe that the type of testing our major medical diagnostics customer does called polymerase chain reaction, or commonly PCR testing, has become a critical use of our technology in the life science space. It remains our view that the expanded testing environment we've been living under, regardless of the specific virus to be targeted, signals a trend toward greater acceptance of the practice of testing as a normal part of our lives. This is why we've elevated development in this area to become our third major strategic focus. To recap, Our three strategic areas are in order of expected near to mid-term growth, Celestin's fully formulated products, active pharmaceutical ingredients for sun and skin care, and medical diagnostics ingredients. We still have some legacy products and a few industrial applications, but we're not doing any further product or market development in this area. Now I'd like to introduce Kevin Curitan. our Chief Operating Officer, to discuss progress in these strategic areas and their drivers in greater detail. Kevin?

Thanks, Jess. To begin, I would like to thank all of our investors for your continued support of our company. Your presence here reflects positively on the progress we have made and the mission our company is on, to enhance people's lives through healthy skin. Today, I would like to provide a bit more depth in terms of our business performance, specifically the Solescence business, to help put a bit more context around the results. I'm sure you all can appreciate our challenge, which is to provide you, our investors, a deeper understanding of your company while trying to protect information that our competitors would like to learn and our clients and brand partners don't want to reveal. We think we have a path forward to do this by providing general descriptions of our performance and improvements to our ability to generate profit through increases in staffing assets and geographic scope. We did provide a bit more of these details in the recent press release than we have in the past, so I will follow that same approach in this discussion. Let's begin with the revenue side of the business and some basic facts around our company. While we're not willing to state the specific number of clients for the reasons I mentioned earlier, we have between three and four dozen brand partners that have either received shipments, placed orders, or both during 2022. This is approximately a 40% increase over 2021. I stated in the press release that we have retained over 90% of our clients. To put this in perspective, we only had two clients that did not return from 2021, and their combined purchases were less than $250,000 or 2% of our revenue. We are fortunate to note that we have doubled the number of clients that purchased more than $1 million in products from us, compared with just four in 2020 and two in 2019. We do continue to work with a wide range of early-stage clients as well, however. As you know, in this business, one of these clients may be the next Estee Lauder or L'Oreal. And we're excited to also note that a couple of our early-stage brand partners that launched in 2021 have already exceeded $500,000 in orders and shipments in 2022, showing the traction of the programs that we've developed with them. We have also launched more than 250 products with our brand partners, which includes products with the leading clean beauty brand in Sephora, the leading derm-positioned skincare brand, and three different billion-dollar global skincare brands. This obviously shows a bit of our scope and scale that we've started to develop. When this is all pulled together, This resulted in having in hand orders that already equal 2021 results. Further, when these orders, when combined with the forecast from our largest clients, we expect solid full year growth with the lessons revenue in 2022 approaching the 2021 results of our entire company. When we started our company's transformation at the beginning of 2020, We knew that given our limited capitalization and organizational capacity, that we had to be laser-focused on one or two priorities to enable our success. The two areas that we chose were to be consumer-focused product development and technology superiority and foundational operating capabilities to enable us to meet the demand we would create. This focus helped us establish our business and our growing leadership position as a partner of choice for brands. Also helping to launch a new generation of beauty products, products that not only feel and look great, but are also designed to enhance the health of your skin by addressing the leading cause of premature aging, UV damage. While far from complete, our successful revenue growth indicates that we are well on our way toward creating the dynamic growth vehicle we envisioned. We have now entered a new phase of our growth plan. During this next phase, our focus will include pursuing operational excellence while we drive growth, remembering that we still seek to drive growth. Operationally, our goal is to be a customer-focused, world-class technology and manufacturing organization. The changes we will make to our business to achieve this goal will largely fall into three key areas, people, processes, and production assets to increase our organization's breadth and depth, much of which Jess has already talked to. We have already begun steps toward achieving our goals. For example, as Jess mentioned earlier, we've added over 30 people to our team in just the last 90 days. We are also aggressively expanding manufacturing capabilities in terms of scale and speed in all areas that we manufacture. ranging from our zinc oxide production all the way through the finished goods packaging capability that we've added. While our plan is to further elaborate on these activities during our next conference call, we also want to note now that the benefit of these changes won't show up overnight, but will instead be accrued with steady improvements in gross margins and operating profits over the second half of 2022 and into 2023. In closing, while we recognize we face many challenges to come, we also remain confident in our ability to further execute on our growth plan based upon the evidence of the past year. Even with the rather limited capabilities we had in place in 2021, we are able to grow our income by more than twice the rate we grew our revenue. Profit grew by two and a half X over 2020, while top line grew slightly over 70%. As our tagline says, the future of sun care is the future of beauty, and therefore, the future of your company still shines as brightly as the sun. Now I'd like to hand things back over to Jess for some closing comments before we begin today's Q&A session. Jess?

Thanks, Kevin. Again, We're about enhancing people's lives through healthy skin with our Celestin's beauty science products and our active pharmaceutical ingredients. We think medical diagnostics is also an excellent fit for the companies we are and where we want to take them. These are the areas where we see the greatest demand and the areas where we believe we offer the greatest value. It also bears repeating that your company, our company, has reached the point where we're working on expanding capacity and tightening up our operations and logistics. These are the things that while certainly not easy, are neither a mystery, nor are they in areas where we lack experience or where such experience is unavailable outside of nanophase and solescence. We have developed some amazing and marketable technologies and demonstrated the rare ability to successfully commercialize them. That was the hard part. There will be much more work coming in 2022 and 2023, but again, we know what to do. We're winning in areas that we can now control, and we're working in to improve the functioning of our companies in areas with known solutions. Although we know that most of our investors listen to the webcast or review the transcript after the live call, we'd like to invite those participating in today's call to ask any questions you may have or to share your comments. Tanya, would you please begin the Q&A session?

Certainly. As a reminder, to ask a question, you will need to press star 1 on your telephone To withdraw your question, press the pound key.

Please stand by while we compile the Q&A roster.

As a reminder, to ask the question, please press star, then one on your telephone. Again, to withdraw your question, please press the pound key. Please stand by. And our first question will come from Rand K. of RKA. Your line is open.

Gentlemen, congratulations on a successful consolidation and execution around your core competency. I mean, you guys stepped up. Well done. Hi, Rand. You mentioned margin pressure and shortages on key materials. some key materials. Is there any backup plan for your high-grade zinc in China, considering that China could be a wild card in the future?

We have a – China is not where we get our zinc, so it's – all of it is sourced as of As of this year, all of it will be in the United States. Typically it's been the United States and Europe, and it depends on partly the timing of getting shipping over here from Europe has been elongated and we've established more sources here. The base sources for most of it before our fabricators or smelters get a hold of it typically are in South America. some other places as well, Canada, but we don't anticipate that being a risk. There are other supplies that could be at risk, but not necessarily zinc metal.

I'm sorry, I thought I read that China was a source. Is there anything that is germane to the product out of China?

Let's let Kevin answer that one. Yes, there is.

Yeah, so thanks, Wren. Really appreciate your comments. Just in terms of what does influence our supply chain from China are primarily the packaging components that are used by us and our brand partners for creating the finished goods. So that's been an area of difficulty for the entire industry, not just the beauty industry, but any industry that's packaging things into tubes and bottles and what have you. So that does remain one of the challenges. And most companies like ourselves are looking for domestic sources or South American sources to try and alleviate some of the pressure.

Okay. And what is your timeline for an full NASDAQ compliance, and do you see any downside for compliance sooner than later?

We don't have a specific timeline for that. The largest downside would just be one more brick to the load of doing what's required. With the year we've had with the material weakness, we've discovered there are things we need to tighten up first, so our first priority is to get everything lined up internally and move forward from there. The NASDAQ, uplisting on NASDAQ, if we were to do that, is something certainly that would take a concerted effort on the accounting side and on some legal, but mainly accounting. And that's an area that we are in the process of beefing up a little bit and working toward making sure that our internal processes generally are very, very smooth. So one of the things that happens with upgrading to NASDAQ is the requirements get a lot deeper on the audit side, so there's money involved there. The money would be offset by, obviously, the increase in liquidity in the market from the perspective of total enterprise value but it also would probably come close to doubling our accounting fees externally and building up more in the internal side, which, you know, it's an aspirational thing. We are working in that direction, but don't have a timeline set up yet. Rand. Okay.

The only reason I mentioned it is, is that I have, you know, I'm feeling comfortable about talking to other people about the stock and The number one caveat that they come back to me with is that their platform will not take a trade. I know B of A won't take a trade, or Merrill won't take a trade on it. So I'm just wondering on cost versus value benefit, if that was beginning to rise up to your level of concern or interest.

Certainly. Certainly, it's both interesting and a concern. We want to allow all of our shareholders to have as much access to liquidity as possible. It's just one of those – we've got a lot on our list, and it's been pretty exciting, but it's also – when you're at the point where I think we're at, which is we've got a lot of blocking and tackling to do to help us really take off, it's a combination of making sure we do that adding the other parts of the business that will allow us to facilitate an uplisting at some point. But it's definitely on the radar, and it's not something that's several years away.

Well, again, gentlemen, thank you very much, and congratulations. I'm very pleased to be an investor. Thanks. Thank you.

And our next question comes from John Henderson of KTG. Your line is open, John.

Hey, good morning, guys. Congrats on the progress last year. I know you guys have a lot going on to handle. So, again, congrats. A couple questions regarding the first one, CapEx. You guys mentioned you spent $1.8 million on CapEx and new equipment in 2021. What are the expectations for 2022 on that front?

We put out a pretty broad range in our $10K range. talked about somewhere in the $4 to $8 million range. Essentially, some of that is based on timing. Everything is dragging out in terms of getting equipment on site. We have equipment now that we are in the process of commissioning, which is going to help with throughput. We have equipment that we're expecting to be delivered later in this quarter, early next, and then We are in the process of trying to schedule both on the financial side and the bandwidth side within our internal capabilities what the second half of the year's installations will actually look like. So it's stretched out, but we certainly have plans to spend more than that much on capital over the next, call it, 12 to 18 months, and we believe we'll be able to finance all of that effectively and not... do that at the expense of the rest of the business.

Great. And in terms of manpower, you guys have hired 30 people or so, it looks like, in the last 90 days. What are the expectations for where headcount may be going over the course of the year?

It's a fluid number. If you look at our at our 10K, you'd see that, you know, we've got, we use a lot of temporary contractors within the business as well as in our own permanent hires part of the business. I think that the way to look at it, you know, headcount would probably be in that, in terms of permanent hires, somewhere in that 80 to 90 plus employee range. But the, of those hires, the bulk of them are not strictly overhead-related type hires, even though I hate to use the word overhead because it has a bad connotation. In reality, you run really lean in order to do things as quickly and cost-effectively as you can, but the price of that is that it's hard to manage ever-increasing flow without the sets at hand. What we've done this year that I think is going to be critical for next year and the following is the The two ads we've had on the commercial development team at the senior level, the commercial team, we've also beefed up the commercial team generally. One thing worth, and Kevin could expand on this more, one thing worth mentioning, though, is that I believe we've had fantastic success, and I think we've run every bit out of those dollars that we spent to get here. But if you look at our business right now, The vast bulk of it came from marketing and market development work that was done 2018, 2019. With the advent of COVID and just the onslaught of all this volume, we haven't done a lot of marketing work. We're beginning this year to do more of it, so our expectation is that some of those additions will be really helping us to not only capitalize on demand we currently have that exceeds capacity, not necessarily generically plate capacity, but capacity of the organization in a given month, say, but also just overall demand. There's a lot of room here for growth, and that's something that Kevin and I are keenly focused on. And Kevin, I'd hand it to you to Round that out a little bit. You're much more intimately involved.

Sure. Yeah, John, thanks for the question. And as Jeff said, we've got a mix of hires that we do. There's a large staffing within our production area that is more contract workers because of the up and down, and fortunately for us, mostly up. of our business that is a large part of our staffing. The hires that Jess was just alluding to are really within the scope of adding more depth and breadth to our management capability and our customer-facing activities as well. The senior hires that we've added in are adding more depth. They've got specific market experience and It means that Jess and I can spend more time on strategic work versus just the tactical work, which is obviously important but would take away from some of our ability to grow and address some of the other challenges in our company. And then also adding with a particular emphasis on a customer-facing team, what we call our customer success team, which is really the team that works directly with our brand partners and clients to ensure that they have a successful experience with us from the start of their work with us when they're developing a new product or purchasing a new product. So there's been a lot of emphasis on those areas in order for us to move forward. a little bit more effectively relative to growing the company, even with the core opportunities we already have. And then rounding that out operationally is that we are still making a lot of effort relative to our supply chain team and our manufacturing team to add more depth there. because of the scale of our business that it is today and then the expansions that Jess talked about relative to the capital investments that we're making, to make sure that those are properly managed and we get the best value out of those relative to translating it into improved gross profit margins. So hopefully that answers your question and provides a little bit of context for you.

It does. Thanks. And not to get into the pain point, but just from afar, it's a little bit difficult to understand. Maybe you guys can just clarify a little bit. Are you guys past the really tough stretch in terms of sifting through the inventory and kind of dealing with the material weakness, or is that still ongoing? Any commentary there?

Sure. I wouldn't say we're past it. That would be a an overstatement. I would say that essentially when you, so the definition of a material weakness, which I don't have right in front of me, but it's something where you're, there's a likelihood that your controls didn't catch something and therefore it can take a lot more time, which it did in our case to lock it down to financials and become confident in the values there. So we are going to expend energy over the next six months working through, um, ticking and tying and verifying and doing all the things that we need to do to get it locked down with hopes of eliminating that from our, not only just our reporting, more importantly, eliminating that risk from the organization this year before we go into the fourth quarter. So the next several months, we'll be doing work on the operational side. There is kind of a convenient nexus here in that we have yet to move to the business currently. We have four buildings, and in those four buildings, we have inventory, significant inventory in an outside warehouse that has several non-contiguous spaces. And so we're going to consolidate that into the new building. When we do that, I think that is going to help us greatly to... ameliorate the issue. So I wouldn't say it's over. I would say that we have very clear plans to deal with it and also that all the way to the board level, it's been a discussion about something that has to be a high priority because we don't want anything slowing us down in the situation we're in, which is a great situation.

Great. And one final question. I mean, it seems like you guys – You know, you talk about Q1 revenues being well north of, you know, $7 million, well above, I think you said, quote, unquote. You know, so do you guys feel like you're kind of, you know, entering Q2 in a much stronger position, you know, relative to, you know, all the issues you dealt with in Q1? I mean, I know you have, you know, a lot on your plate still, but I'm just kind of curious, you know, how you're thinking about things, you know, for the spring and summer quarters.

Do you want to speak to that, Kevin? Sure. Yes. I would say we definitely feel the challenges of Q1 are still with us, a few of them, as Jess has already indicated. But we definitely feel that Q2 is off to a much stronger start. We don't have some of the – quite honestly, self-inflicted pain that we had at the beginning of Q1 to deal with. And we are really focused on delivering the open orders that are significant in this quarter, as it will help us to have a good Q3 and Q4 based upon sell-through by our clients. So, I think we are in a good position to have a strong Q2. And, you know, because we don't provide too much guidance beyond that, that's what I think is a fair way for us to state at this point.

Great. Thanks for your efforts. Appreciate it.

Thank you.

Thank you.

As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, to withdraw your question, press the pound key. And our next question comes from Ron Richards, private investor. Your line is open.

Hi, Jeff. Can you hear me?

Hey, Ron. Yes, I can hear you well.

Okay. This internal controls problem, are we talking about missing inventory or anything else that will have a negative impact on the financials?

The negative impact on the financials, already has gone through the financials. So there was some relationship to the fourth quarter results being poorer than we would have liked. Now we added, if you look on our balance sheet, we added about a $375,000 reserve to inventory. And some of that is also a function of looking at obsolescence and us looking at that more regularly. getting things done in a slightly more orderly fashion. I don't think it's going to impact the results going forward. Here and there, I'm sure we may, you know, until we're confident that we can do this quickly, we may put a smaller reserve up here and there, but I don't think it's going to be an issue in 2022. Okay, that's part of the reason it took as long as part of the reason it took as long as it did to close things up as we were going through that exact issue saying, Okay, let's make sure that whatever we you know, we find we have, let's just make sure this is accurate and that we're, we're set to move forward in a very good way, solid way financially.

Okay, good. Now, are you partially moved into your new building? And are you producing product from there?

Not yet. We're a distance from that right now. We are redoing the floors. Some of the work we're going to do there requires that the space is very – we're going to certify the building to CGMP, which is the FDA standard. That will take a little bit of time. We'll put in space that is – clean and filtered air all around the workers in there. So the first steps are going to be to get the racking up and running, get everything organized, and as I mentioned, move all of our inventory over there. The inventory in the business, it's just because of the nature of making fully finished products, is just very, very bulky. You know, little bottles and lids and caps and balls and boxes and all these things take up a lot more space than what we're used to, and that really is part and parcel of the controls we're working to strengthen, just because you've got so much material flying around, moving in and out, that it's critical. So that's the first step, and that will probably be, hopefully we'll get it all cleared up and straightened out by the mid to end of the second quarter, and at that point, probably will be doing some production, some initial production in the Bolingbrook building. I expect more like the second half of the year. It'll really start to help. But additionally, just getting all that moved is going to not only add some efficiencies, but it's also going to allow a little more elbow room everywhere else, which is going to be helpful as well as we migrate over there.

Okay. Now, when you complete the move, will you be getting rid of your other facilities? And do you rent those? Do you own them? Will you be selling them?

All of our facilities are leased, so we won't be selling any. The warehousing, which we currently have outside of the manufacturing buildings, will be going away. and that will be the quickest offline. We have to evaluate some math on some of the other things. I think over time we'll consolidate further and further, but we're not quite done yet with the degree of... One of the reasons that we probably waited a little longer than we should have to move, aside from cash flow, was that there's a lot of infrastructure in any place that we put our our materials, our equipment. There's a lot of electricity requirement. There's explosion proof requirement plus the CGMP requirement. So I think at a minimum, you know, currently we have the one building that has three spaces in it that are probably in the 70,000 plus foot range. That will be going away. And then we have the other spaces and we will be migrating in the direction, and the timing is a little bit up in the air just based on the availability of people, parts, and equipment to move things. But that is the goal, to consolidate it all further. And we have a fair amount of flexibility in our leasing structures. A lot of them have several one-year additional periods to them so that If we miss a deadline, we could extend it without entering into a full-blown five- or ten-year commercial lease to do that. So got to stay tuned on that one.

Okay. Now, one last question, just to get a little better idea of your head count. How many employees have you typically had at the end of this year? How many employees do you anticipate having?

Well, historically, we've always been in the range, always being like before Solescence for 10, 15 years, probably in that anywhere from high 40s to the low 60s in employees. With Solescence, part of the strategy was to expand the business using, to the extent we could, temporary contract labor because there's a, in the filling assembly process, business that's fairly common because it's a campaigned business. I think last year, we probably, at the beginning of last year, we probably averaged somewhere about, in all the facilities, maybe counting temporaries, call it 90, 100 people. By the end of this year, this past year, we probably were in the range where we were, say, 150 plus people By the end of this year, I'd expect that our permanent employee count would be somewhere in the – anywhere between 80 to 100. Some of that would depend on – as volume increases, we probably will decide to make some of the temporary positions permanent. On the temporary labor side, however, as we get – we're still doing a lot of this manually, so we're working to either – either take what we've automated and take it up to the next level, because some of these steps are pretty large and steps we couldn't make as a small company starting out in the business. And in some cases, we just haven't automated yet, which we will, which is probably going to reduce that labor burden considerably.

Okay, so counting temporaries and permanent at the end of this year, are you looking at more than the end of last year?

I would say probably about the same. If we were not to do anything, Kevin could opine, if we were not to do any of the additions to the CapEx, I would say it would probably go up.

Yeah, I think the number that we're expecting is somewhere between 160 to 180. The reason that we are not very specific is that we're not exactly sure how much of the automation is going to be able to be implemented. And therefore, once we complete that automation, what typically will happen if we continue with our growth is that we will lose maybe one or two people. But overall, we end up redeploying them into different jobs. We won't necessarily see the same growth rate in our temporary labor staff that we've had in the past. In fact, that's our plan is to not see that through the automation that we have. But we don't expect that to actually diminish much either over the next couple years, if that helps you understand the labor.

Yeah, it does. I appreciate your detailed response. Thank you.

Thank you, Ron.

Again, as a reminder, to ask your questions, please press star 1 on your telephone to withdraw your questions. Press the crown key. Our next question comes from Wayne Rowan, a private investor. Your line is open.

Jeff, thank you for your dedication since I've known you. You never cut and run when it was tough, and I appreciate all your loyalty to the company and everybody else.

Thank you, Wayne. Thanks for your loyalty to us, too.

We've seen some hurricanes, haven't we? We have. So you expect a growth in sales and in Austria in 2022? And is your cash position a lot more comfortable than it was? I mean, you see an expansion in our sales for 2022 and our cash position improving, and anything in Austria kind of chirped at my mind to ask. Sorry I'm not very good on the phone.

No, no problem. Austria, I'm assuming you're talking about the risk associated with what's going on over there. or our medical diagnostics group, that on the Celestin side, you know, as Kevin mentioned, you know, we think it's very achievable to have the equivalent of last year's company-wide volume for just Celestin. So, you know, in numbers, that's, you know, going from 18 million this year to almost 30 million potentially. So, you know, that could grow by 50% plus on the – With respect to the personal care business with BASF and the API sales, that went up 40% last year, and we're expecting – it's still below its all-time highs, but we're expecting more growth this year, potentially 50% plus. So that combined would put us into that – $40 million-ish range, depending on a lot of things, of course. But we're looking for an exciting year, and we're looking, I think, as much as, you know, you'd like to take a victory lap and say, hey, this is great. Look at what we've accomplished. I think Kevin and I are both frustrated by the fact that we can't grow faster yet and that there's some room here. You know, we want to become... very slick in the functioning of the company so that really it becomes, again, market as much and sell as much as you can and we'll make it. And I think that's a really exciting part of this business and that's where, you know, to me, that's the thing we've been looking for for a number of years and we're finally there.

Thank you for answering and, again, thanks to all your people.

You're welcome. Thanks for hanging in there, Wayne. No problem.

And we do show a last question from John Henderson of KTG. John, your line is open.

Thanks for one follow-up. So, I mean, you guys clearly are laying the foundation for a much, much bigger company. And, you know, as investors, we try to create a model for what's coming in 2021. not just this year, but for the years beyond as well, because that's what, you know, gets you a multi-bagger. So from a kind of a long-term perspective, you're talking about, you know, prepping the company to be multiples of where you are now in the press release. I mean, is the long-term vision, you know, to kind of, you think you can get to be, you know, 100, $200 million company, you know, three, five years from now, is that the ultimate goal? And I mean, that's ultimately why you must have scaled your square footage by, you know, three Xs. Any long-term commentary for us to kind of enjoy? Thanks.

Enjoy. Yeah. Well, you know, we don't want to go out that far. And part of it, there are so many variables. I could say that we would have done more volume in certainly 2020 and 2021. We were just constrained by being able to get everything made and out the door and just drinking from a fire hose when it comes to, uh, the volume requirements and that we're addressing that. So you're right, John. Um, at this point, I don't think that, you know, a hundred, $200 million company is nearly a far away dream. Um, I think that the opportunity exists. I think the iron is hot. So, you know, we are, we are trying to support growth as much as we can while keeping an eye on the bottom line. Um, as we're doing it, but the... And I'll let Kevin follow up. I think in the whole, the markets we're in, particularly for the APIs for sunscreen and then the Prestige Cosmetics, where we're selling Celestis products, have aligned very well with what we're trying to do with what we've been doing. I mean, this company... has been based on minerals-based products. And there have been challenges in those industries for years on getting, everybody would prefer to use mineral-based products, but getting them to go on people's skin and look nice and feel good, that's something that we have really mastered with the Solessence technology. And I think between that and the inherent value of the particles and the fact that there's this major change major tailwinds for us. I think the limitation is going to be based on a combination of our ability to execute. Of course, there'll be competition coming, but there's been competition and we've been doing pretty well there. Kevin, what would you add to that?

Yeah, thanks, Jess. And I think there's, as Jess has indicated, our ambitions are significant. We're not prepared to disclose more than that, I think, but to really remind the investors that as we've communicated in the past, we've probably left, you know, somewhere in the neighborhood of 10% or more in terms of revenue that we could have shipped in any given year on the table for shipment in the following year. And so that really reflects the demand that we have for our goods. We also can reflect positively on our ability to sell on a global basis, which is in part reflected by, I mean, we always forget that Canada actually is a different country, and it does require different bases for selling goods. Europe is an area where we're increasingly able to sell, and we've announced previously that Australia is another jurisdiction that is very difficult to sell the type of products we make and requires special approvals there, and we've been able to do that. So you're absolutely right, John, in saying that we are building a company to scale it, and as Jess has indicated, A lot of it will depend upon our ability to execute starting right now relative to getting the products out that our customers are demanding and staying in the lead in terms of the aesthetics and the performance of our products that the market really enjoys.

Well, thanks so much. Appreciate all your efforts and hard work. Thank you. Thanks, John.

And I would now like to turn the conference back over to Jeff Jankowski for closing remarks.

Thank you, Konya. Before I talk about my prepared remarks, I would say that, especially for those investors that have been around, this $29,475,000 does not round up to $30 million. And that's a killer. I would have loved to hit that this year. And it reminded me of the time back just before I met Kevin and we started getting our heads together. I had people in the company asking me, why wouldn't you be thrilled if we had $30 million in revenue in a few years, which was way before now, but in a few years. And I just said, hey, there's a lot more here than that. And I still believe that. So to my comments, We've developed some amazing and marketable technologies, and we've demonstrated the variability to commercialize them. That's a huge thing. We've come to a point where we're a much different company today than we were even a year ago, certainly a few years ago. We've added people and facilities to support growing sales, and we're not done growing yet. Our ship and open orders leaving Q4 were better than $33 million. So Lessons is growing quickly. We're effectively selling everything we could make. We're seeing growth in APIs with the potential for 2022 sales to exceed 10 million. Growth in both of these businesses is supported by a directional change in the markets we serve, favoring the materials-based products that are the foundation of everything we do. The medical diagnostics ingredients business remains an area of strategic importance to us, and we're now focusing on bringing new people, new equipment, and additional facilities online to accommodate more growth and coalescence. We're in an excellent position to keep growing. In 2022, we plan to clear the decks to make this more seamless. We'll start with building more operational efficiencies of scale this year, then ramp up our focus on enhancing profitability. We like where we're at. So we're looking forward to the opportunity to discuss the business with you again next month. And thank you again for taking the time to listen and to support our exciting companies. I hope everybody has a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.