Nanophase Techs Corp

Good day and thank you for standing by. Welcome to the NanoSafe second quarter 2022 financial conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your telephone. That was star 1-1 on your telephone. Please be advised that today's conference is being recorded. The words believes, expects, anticipates, plans, forecasts, 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 business release. These important factors include, without limitation, a decision of the customer to cancel a purchase order or supplier 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 conflicts, and other risks indicated in the company's filings with the Securities and Exchange Commission. NanoFace undertakes no obligation to update or revise these forward-looking statements to reflect new events or incentives. I would now like to hand the conference over to Jess Jankowski, President and CEO. Please go ahead.

Thank you, Carmen. Good morning to all those listening live and welcome to those who choose to listen later online. Thanks for joining us for today's call. Our discussion will cover second quarter and year-to-date results, the current state of the business, and some of our tactical plans for 2022. Kevin Curitan, our Chief Operating Officer, is also with me here today. We can't deny that our second quarter results fell below our expectations. A great top line followed by above average costs led to below average margins. We know that marks two quarters of underperformance in terms of profitability, but there's a lot to be optimistic about, as we'll discuss. After the numbers, I'll expand on this a bit. There are a few things we're going to return to today and probably through the year. We've seen phenomenal growth in 2020, 21, and so far in 2022. This has been the result of focusing primarily on getting as much product out the door as quickly as possible. We're still seeing high demand for our technically enabled products by consumers and our brand partners, all of which has been energized by a favorable regulatory landscape. We're in that golden period in a growth company's life cycle where building more business through sales of what is clearly a disruptive technology is being limited mainly by our inability to produce more product. Our profitability has been impacted negatively in recent months, But we're in a spot where we see many opportunities to reduce costs and get margins back on track. Before I expand on this, let's hit the numbers. Unless identified otherwise, all numbers will be stated in approximate terms. Similarly to the first quarter of 22, we had uneven product shipments during the second quarter, with a significant portion of our revenue hitting in June. Our previously monthly revenue record was $3.8 million in March of 22, In June, we hit 4.9 million. And we finished the quarter by breaking through with another revenue record. We had 11.2 million in Q2 revenue. This was on top of Q1's 8.2 million, which had been our prior record. Together, this led to 19.4 million in revenue for the first half. For reference, we shipped 7.1 million in the second quarter of 2021, and first half 2021 revenue amounted to 14.2 million. While we enjoy big revenue months like March and June, particularly if they can be representative of future run rates, they can also negatively impact margins when the other months in a given quarter are lower than expected. This can lead and has led to poor overhead absorption during the lower months, as well as labor inefficiencies. Gross profit margins for the first half of 22 were 25% compared to 32% for the same period in 2021. In our view, The 7% differential for the six-month period when applied against 2022 quantity shift represented a minimum of about $1.3 million in lost opportunity. Much of this was due to labor inefficiencies driven by the use of a higher quantity of inexperienced contract labor, heavy overtime, and a shortage of production management on the floor. Some of this was further driven by our struggles with inventory and production as we consolidated from several small to medium-sized warehouse areas to one large one, and we continue to spend lots of management and engineering resources preparing to move key parts of production to our new facility. I use the term lost opportunity here because we know how to fix it, but we couldn't get that done during the first half of 2022 while driving all of the other things in the business necessary to get the product shipped. For the first half, net income was about $110,000 or zero cents per share compared to $400,000 or one cent per share for the first half of 2021. The 2021 number I'm referring to is before including the $950,000 in other income generated from the forgiveness of our PPP loan in February of 21. That was a one-time event in 21 that didn't relate to operations. We built almost $3 million of inventory between the end of 21 and June 30th of 22. A good deal of this expansion was intentional, as we purchased raw materials in greater quantities than we needed immediately in order to create a buffer for the supply chain issues that plagued us later in 2021 and for parts of the first half of this year. This has also been a function of our rapid growth, which has created a drain in working capital and led to production inefficiencies, particularly when operating out of several warehouses. We finished the consolidation of our warehouses early this month, and like the story of our labor inefficiencies, this presents us with another opportunity to increase throughput and profitability. Shipping 19.4 million in the first half of 2022 was exciting, and it's more exciting when we contemplate the planned productivity and efficiency gains yet to be made that we know will enable us to ship more product and make more money. I'm sure you're tired of hearing me talking about growing pains, but they are inescapable. Fortunately, they aren't baked in, and we're addressing them now. From June 30th out through the end of 22, we have 18 million in shipped orders and POs in hand. We also expect there to be more 2022 POs coming in. Additionally, in August of 22, we have more than 10 million in 2023 purchase orders in hand. We also know that a substantial portion of our 2023 purchase orders would be happily accepted by our customers in 2022 if we are able to deliver. That is not lost on us. We're maintaining our growth strategy, which is now being sustained by the new senior sales and business development leaders who joined our companies during the first quarter. This will allow Kevin and I to focus much more of our attention to achieving operational excellence as we complete the onboarding process of several new key finance and operating leaders during Q3. There will be more to follow on this. Shifting gears for a minute, we know that we have many new followers on each of our calls, some live, most on the web. Given that, we wanted to make sure our value proposition remains clear. The questions I'd like to address are, Where do Celescence and Nanophase fit into the larger market environments they serve? And what are some of the tailwinds that have helped us to bring us this far? Our primary business within Celescence is the design, manufacture, and packaging of prestige cosmetics. In our case, all of these provide protection from the sun damage caused by the sun, skin damage caused by the sun, pardon me, through the use of natural, safe, mineral-based, full-spectrum UV absorbers. We use our patented technologies to bring a luxury feel and appearance to cosmetics that historically haven't included a great deal of UV protection. We have taken this to another level by primarily using minerals-based absorbers. While generally viewed as safer to use or healthier than chemicals-based absorbers, zinc oxide and other minerals suffered from the historic perception that they caused whitening or ghosting on people's skin. This was the perception in the past largely because it was true. I say was true because Nanophase with its world-class APIs and Celescence with its formulation technology have pioneered zinc oxide that could be engineered to be worked into formulations in a way that it did not create whitening. Even after this technology became broadly available, consumers didn't understand the benefits, so they didn't embrace it. Manufacturers of active wear sunscreens didn't get behind these materials either, typically due to the lack of consumer demand the existence of more than 10 chemicals-based alternatives, some of which were inexpensive, and their relative lack of familiarity with zinc oxide in formulation. When we invented the Solescence technologies, of which there are now several, we decided that we would develop model formulations for the industry with the purpose of showing customers that zinc oxide could be a big winner in both the sunscreen markets and in cosmetics. The goal was to make our materials much easier to work with than anyone had ever seen in the past, creating products enabled by minerals that companies simply didn't think were possible. Even then, there was still a good deal of resistance in the market. Then the external environment changed in a way that was very beneficial to us. Beginning with Australia, as they saw damage being done to the Great Barrier Reef by chemicals based on screens, national governments Then even some local governments began prohibiting the use of sunscreens with chemical active ingredients known to damage coral reefs. Consumers began to take notice and started demanding reef-safe sunscreens. Minerals are a natural for this. At roughly the same time, this was all in the late teens, consumers began to better understand three things. Damage from the sun was literally the cause of 90% of premature aging. Second, skin cancer was a real threat to health and happiness. And third, minerals were a more natural way to stay healthy. Now, the demand for zinc oxide as a full-spectrum UV absorber began to get legs. Then, in October of 2019, the U.S. Food and Drug Administration made an announcement that resonated through the entire market. the FDA began publicly questioning the safety of chemical UV absorbers in the form of proposed regulations. Historically, there were 14 materials allowed by the FDA to be used as UV absorbers. These are published in what is called a monograph, dictating which materials could be used in commerce. In the United States, any product with a label claim of UV protection is regulated as a drug by the FDA. In the business we're discussing, we refer to these as APIs, which stands for Active Pharmaceutical Ingredients. Of the 14 UV absorbers listed in the monograph, two were mineral-based, zinc oxide and titanium dioxide, while the other 12 were organic chemical or chemicals-based. The FDA declared that the minerals-based APIs were known to be safe and needed no further testing. This supported what we already knew, what dermatologists knew, and what was already beginning to dawn on customers. The FDA went on to say that a few of the chemical absorbers had become known to be unsafe and needed to be withdrawn from the market, with the rest of the chemical alternatives, every one of them, being put in a category where more testing would need to be presented to the FDA before they could be deemed safe. The big producers of these chemical absorbers have been fighting this proposal by the FDA, which has yet to be put in the law. That said, some chemicals are no longer used in the market. You can assume what you will there, while others remain on the shelves. We believe that the reason this hasn't moved faster is that there are not nearly as many zinc oxide producers in the market as there are big conglomerates who continue to pump out these unproven chemicals. The good news for us, nanophase and coalescence, is that consumers are becoming more aware of the risks associated with chemicals-based absorbers every day. which can only be good for us. So today, minerals-based UV absorbers are what the markets want, and most minerals producers are not achieving the performance that we can in this area. This looks a lot like a long-term demand cycle, and our positioning is excellent. For those of you that are newer to our companies, the growth seeds for Solessence were planted during 2018 and 2019. You need to know that we have done very little marketing or new customer development over the past several years. I mention it because this means that our customer base and the excellent growth within it that we are experiencing has been built upon the merits of our products, word of mouth, and the work we did prior to 2020 in getting our products in front of industry leaders. We've changed this with the addition of the senior sales, marketing, and business development resources we added to the company in the first quarter. We expect to begin to see solid growth from these new efforts later this year, but even more so in 2023. As you have all recently seen, not without some financial pain, we're being limited by the constraints put on our organization by the fantastic growth we've seen in our Celestis products. The production and operational improvements we need to make will get done as senior management devotes the bulk of our focus to fixing this, supported by the onboarding of the internal capacity we need to make it happen. We're really excited to see what our team can do with our products and technologies. We will get past our growth-related operating issues, which will allow us to grow as fast and as profitably as we know we can. Now I'd like to introduce Kevin Curitan, our Chief Operating Officer and my partner in all of this, to discuss progress in these strategic areas and their drivers in greater detail. Kevin?

Thanks, Jeff, and good morning to everyone. As always, I will begin by thanking our talented team for their continued efforts in our work to not only transform our company, but to simultaneously transform a market. As I am the glass is always full guy, I will add a couple of additional remarks to Jess's reflection on our history and transition. In the almost 33 years since our company started, and only six of those years has the company's annual revenue, I'll repeat, annual revenue, exceeded this quarter's performance. Three of those six years include this year, 2020, and 2021. This is not to say that we are pleased with the bottom line performance, but it is certainly appropriate to celebrate the realization of a meaningful and sustainable organization we are in the process of building. Continuing on, while we mentioned a number of important milestones in our earnings release, here are a few additional items to consider. First, we remain confident in our ability to address the primary factors that contributed to our gross profit margin issue in the first half of this year. And Jeff mentioned it also, our labor efficiency issues. If you reflect back, and for those of you who were on the past conference call, you'll remember that we did speak about this a bit in that call. As we noted in last quarter's conference call, we are implementing programs specifically process automation that will significantly improve labor efficiencies. Through these process changes, we are targeting to increase gross profit margins by greater than five points over the next several quarters. The first of these new capabilities is, as of just this week, operational in our new building, where we are seeing the expected reduction in labor costs as a result of increasing output per labor hour. We will refrain from providing more specific details at this time on the degree of improvement, but we are on track with the goal mentioned above. As with most companies, we have been impacted by the unprecedented increase in materials costs and wages this year. One of the important challenges that manufacturers like us have is to implement price increases to help address these purchase cost increases. We are making solid progress here as well. Compared to 2021, our average price per unit in our obsolescence business with changes in product mix and needed price increases is up over 6%. Since this hasn't offset all of the margin erosion of the increases in materials cost, We believe there is still more room for improvement, and in fact, we are continuing to make additional changes in product mix and implement further price increases. Turning back toward the revenue side, as Jeff has already mentioned, we have on-hand orders that will enable us to exceed first half revenue results. Good news. We can also, with this good news, say that the products we developed with our brand partners are now available in all major beauty retailers in the US, several major beauty retailers in Canada, the EU, and Australia, and literally thousands of stores around the world. As a further peek into the future, our pipeline for new opportunities is expected to contribute solid double-digit growth in 2023. Our continued success in winning industry acclaim for our products and services include winning Best Formulation at the COSMOPAC Awards, which we announced earlier this week, being named the finalist for two other industry awards, and continued success of our brand partners as they achieve their own noteworthy achievements and being mentioned in top sunscreen lists in multiple publications. helped make us a desired destination for brands seeking best-in-class skincare and cosmetic products with SPF. As I prepare to pass the mic back over to Jess, I will say that being the guy who is the always, glass is always full guy, isn't the same as being the guy wearing rose-colored glasses. Where I clearly see the challenges we are aggressively moving our company forward to address them. While we are also keeping capable and talented resources focused on aggressively and yes, more possibly grow our company, your company, and become the globally sought after brand we aspire to be. Jess, I'll turn it back to you.

Thanks, Kevin. A few short observations before we get to the Q&A. Of course we're not happy with the results for the first half, but it would have been difficult to avoid excess expenses while focusing on rapid expansion. We believe that the greatest way to enhance the enterprise value of nanophase and solescence started with expanding our footprint in a series of prestige cosmetics brands. We're doing that well. Now it's time to tighten up the operating side of the business to allow us to continue to build a formidable and higher profile presence. In the end, We have a great business here that we are confident will become quite profitable and much more valuable. Now, we'd both be happy to answer some questions. 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. Carmen, would you please begin the Q&A session?

Certainly. And as a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. One moment for our first question. From James Lieberman from Reserve Securities, your line is open.

Thank you. I want to congratulate you on this remarkable achievement. It's one thing to create this vision and then to be able to integrated and to be able to ship and to be able to manage a company during such exceptional growth period. And I wanted to focus more on, if you can give more color, on how you can, in fact, manage the cash flow during this high growth period. Are the turns enough to be able to help you manage it? And are your lines of credit sufficient enough, you think? Because it's really an extraordinary achievement. Thank you.

Hi, Jim. Thanks for being here. Kevin could add some color. I'd say on the one hand, we know that we are going to be able to reduce some of our working capital in the sense that the supply chain issues have eased, and we believe we'll be able to speed up the turns a little bit. On the other hand, we also have additional financing remaining to buoy us through a soft patch. I think in the end, one of the things... I mentioned earlier, and Kevin and I discussed a lot, has also to do with, you know, we're still in this, I use the term in the 10Q, which obviously we were a little behind. We normally would do this call before that, but we talked about cyclicality, and normally when you hear about cyclicality, you think about seasonality relative to sunscreens or whatever. In our case, I think part of our push is also to have a more even flow of production on a regular basis, which with the fits and starts has been a little tougher, which has been a bigger drain than it typically would be. And I think that coupled with the inventory situation becoming easier on the raw materials side, coupled with the focus we're having and our financing, puts us in pretty good shape to support the growth.

That's terrific. And also, it's a real challenge and an accomplishment to be able to do a transition to a new manufacturing facility. And how do you see that going in terms of the scaling up? Because that has its own sets of challenges. Thank you.

Well, yeah, I agree. One of the things that we're doing is doing it in pieces, and we have what are some fairly modular pieces. features of our company. So we're going to move, you know, warehousing moved first. That's the thing that is going to impact the whole business in a positive way, having a smoother flow of materials. And then filling and packaging, and there are some other things that are relatively easy to move. And so we're doing this in a stepped fashion that is not going to disrupt the flow of materials through the business. Maybe Kevin could comment a little bit on that as well. just to round that out. He's a little bit closer to it than I am. Yeah, thanks, Jess.

Yeah, thanks, Jess. And, Jim, just to further comment on the working capital piece, I think what Jess mentioned is correct, that we are targeting a meaningful reduction in our inventory through really the improvements that we're seeing in lead times. and a bit better management relative to forecasted demand and matching that up with the inventory requirements. So, we do see a good opportunity to happen over the next couple quarters specifically. We won't be able to do it all in one quarter or maybe not even in two, but certainly through the next couple, we'll see an improvement there. In terms of the move, Jess correctly stated it. We are doing it in a modular manner. We do have the sort of easiest piece to move, even though it wasn't that easy, was to consolidate all the warehousing into one location. That's a big deal, and that's now done. So we're excited about the improvements in the streamlining in terms of our production processes that will help. We are already doing some assembly operations in the new building as well, and it's our expectation by end of year to beginning maybe the first month or so of the new year, we'll have our filling and packaging activities completely over into the new facility. But ultimately, it'll take us a couple years to get it all done, but we will be able to incrementally move these different parts and get ourselves going through that process.

Thank you for that. I like the methodical approach. And one last question, and I'll step away. If we were going to one of these cosmetic stores, are there things that we would look for, some sort of a code to show your ingredient, or would we just have to Yes. We saw the ones with the Serena Williams line that looks fantastic. For other lines we might be looking for, is that something we would easily be able to identify?

Not yet, but we're continuing to work on it. It's actually the Venus Williams line, the 11 product line. But there are a few other brands that over the next quarter we'll be able to talk more about. And then in our grand vision, we hope to be able to more readily be able to identify the clients and the brand partners that we are working with more clearly. But, you know, I can tell you that there's a list that if you are able to follow that link that is in our press release, you can look at Half of that list is our clients, and so you won't go too wrong by picking any of those folks that are in that list.

Thank you all very much. Appreciate it. Thanks, Jim.

One moment for our next question, please. From the line of Anthony Rubin, please proceed with your question.

Hi. Good morning, gentlemen. Thank you for your call and your very thoughtful comments. Kevin is the guy in charge of sales. You clearly get kudos for overseeing a record volume period. You were 12% over mine, but some would say we're optimistic forecasts. You mentioned the awards that you've received, and again, kudos on those. But as a layperson, I don't really have a context as to how significant or not significant they are. I'm assuming they are significant or you went to put out a press release. But can you provide context? Is this the equivalent of winning? Just give us some context, please.

Yeah, it's not quite the Oscars yet, but thanks, Tony, for that question. It is a meaningful award. So just to put it in perspective, Cosmoprof is the largest beauty and personal care event in North America. There are literally over 30,000 people who participate in that event on an annual basis. It is a global event. These events do happen around the world. But our specific award was one where we submitted, based upon the open opportunity to submit products. We were selected out of a large class of participants. We don't know the exact number there, but typically there's hundreds of submissions usually for these awards. So it matters in our industry because it's a reaffirmation, again, specifically for our company of the quality and caliber of the products that we are making and the uniqueness of those products and how they can further be leveraged by our brand partners. Many of our brand partners win awards. I think they're literally, since the start of our company, over 100 different awards that our brand partners have won. And points of notice where they're on best list, essentially best 100 or best 10 sunscreens or best makeup product with SPF and things like that. Essentially best 100 or best 10 sunscreens or best makeup product with SPF and things like that. So it's really a nice event for us. We'll be able to talk a little bit more about the other two nominations here in the next couple months. You'll see there'll be a couple press release that will talk about the other events. But similarly, there were hundreds of submissions and we were selected as finalists for those and we'll know whether we win by the end of Q3. for those other awards as well.

Okay, well, yeah, congratulations. It's very impressive in having some context in that as that being a very significant competitive award. I just have one other question. Again, I think more you, Kevin, as COO. Margins since Q4 have been disappointing, and obviously you guys have both addressed some of the operational issues. We were at 24.4% this quarter, and last year, at the same quarter, we were at 35.3%. You know, you mentioned in your comments a 5% improvement in margin. Can you provide some context as to when we would get back to the levels of last year? And I'll just make one other comment along those lines as someone who's involved with rapidly growing companies for years is that you've mentioned in your comments that, you know, the operational issue should be wrapped up in a couple of years. And I would suggest, obviously you're doing a thousand things and sales is the hardest and most important, but for a small company, a couple of years is a lifetime. And, you know, if you need to, fire bad people, or I know you're bringing in a lot of people, but I would just suggest that the company be more aggressive about getting to a status quo or a stasis margin level, you know, more aggressive than a couple of years. But beyond the comment, the question was, when do we think we can get back to the margins that we saw last year?

Thanks, Tony. Again, just to clarify a couple things there. One, the comments should have been several quarters if I stayed a couple years. We're certainly not expecting to take that long to improve our operational efficiency. And, you know, Jeff and I aren't in the same room, but if we were, he'd already be kicking me under the table to not overpromise. So, but I will tell you that we definitely are making, one of the advantages of the scale that we've reached is that we have easily justified further automation. We also, as you mentioned, Tony, is we have brought on some really capable people, both in our commercial teams. We hired a new director of manufacturing. We're closing in on hiring a new director of supply chain. And, you know, with all of these additions, we're bringing in industry specific expertise that, you know, with only a, we only had a handful of that within our team before. And now it's becoming at least at the leadership level, a predominant characteristic of our company. So that's the great news. The improvement that we're looking to do is really further automation and executing on that, that automation and, And the scale that we've reached helps the justifications on that automation. And part of our challenge, of course, has been that where we were located in Romeoville, and still are, we really didn't have the footprint to allow us to implement some of the automation that we knew we needed to make and take. Now, as we move into our new facility, it's more purpose-built, it has the right footprint, and it therefore allows us to execute on the things that we know we need to do to improve labor efficiency and therefore lower one of our critical cost drivers. Over the next few quarters, and I'll stay consistent there and Jess may have other comments further, but we will expect to see incremental improvements in our labor efficiency and, you know, certainly reaching gross profit margin levels that are more reflective of what we were able to do in the past year.

Thank you for that, and I'm glad to hear several quarters instead of a couple of years. But, you know, obviously you've got growing pains, but I'm just very pleased with your level of sales success and how you characterize demand and, of course, the macro factors that Jess mentioned in his call. So thank you for taking the comment. Thanks, Darlene.

Thank you.

One moment for our next question, please. comes from the line of John Henderson with KTG.

Please proceed.

Good morning, guys. Congrats on the progress. A couple questions. Just trying to figure out in terms of the new facility, heavy equipment, CapEx, I mean, are you guys got a line of sight to kind of getting everything you need in place by year end? Any update there? I know you kind of covered it a little bit, but just in terms of like, you know, dollars into additional capex, you know, where do we stand, you know, on that for the rest of the year?

I'll comment on one part and then JJ, sorry, Jess, we'll handle the financial stuff. Just to be clear, John, we aren't expecting to have a full completion of the move in for a couple years. That is a couple years, correct. What we are expecting to be able to do by year end to say the first part of 2023 is complete the move of our packaging and assembly operation or filling and assembly operation, which is sort of the final step in building the products that we built within the Solescence business. That also happens to be the most labor intensive process in our company as well. And so that's part of the reason that we're excited to get that done and to be able to therefore help to improve some of our labor efficiency issues. And I'll shut up and let JJ comment further.

No, good comments. I think that, I mean, that points in a way to kind of the low-hanging fruit we talk about. Those are the things that will have the biggest impact on the labor efficiency and the margins, while also having less of an issue relative to financing them in terms of magnitude of money. So those are naturally the first things we're going to work on. We do have some financing in place and some planned. As we go forward to do this, there's a lot of balls in the air, as usual. but I don't see it as being a problem over that few-year cycle. It just becomes a question of when we do it and how the rest of the business times out. And frankly, Kevin and I are both disappointed in the results so far, and part of that helps in every other way to fund the business, not just from creating operating capital, but also making us a more attractive target in terms of getting larger, supporting a larger debt when necessary. So it's all kind of related. We see the obvious push to be on the filling and assembly side to get that done. It's the thing that is the easiest to move. It also is the thing, as we said, that creates the greatest inefficiencies, and that's followed probably by some of the inventory issues we've had that we have addressed in terms of consolidating everything and moving to barcoding and doing lots of things that, you know, bigger companies have to do and that we are, as we, I probably beat it to death and between us we did in terms of start with focusing on growth and then focus on the operations side. So we think we're in pretty good, pretty good stead there.

Understood. Thanks. And in terms of new business, I guess for flipping back to Kevin, in terms of you guys hired, I think, five, six people in your sales support team. 2023, you mentioned expectations to grow double digits. Can you kind of frame what the pipeline looks like in terms of new customers and how those new sales initiatives are going? And as part B to that question, are you guys still at the point where you're more or less have, you know, almost too much, you know, potential leads to kind of handle, you know, where you're almost turning away business just because, you know, you have so many other things that you're focusing on?

Yeah, I mean, we never like to turn away business, so our approach hasn't been to turn it away, but to say, hey, not right now, where there are circumstances where we don't have the capacity to address the needs. So, That's answering your last question first, but we definitely see a continued deep pipeline of opportunities. We are looking at significant double-digit growth on our Solescence business alone in 2023 based upon the opportunities that are close to being closed, if not already closed. Part of the advantage of our industry and the way that we do business is that effectively early in the process, we get a commitment out of our client. And so we do have a good window on that pipeline and it remains very strong. The addition of the senior leadership team to the senior leadership team of the commercial folks has been extremely positive. They also are managing our client base much better, so we're getting better consistency out of the service level that we're providing there as well. So those are all positives relative to the growth of the company and the creation of new clients in this year, next year, and in years to come.

John, I think it's worth mentioning, and sometimes internally I know that we have said this so many times that people get sick of hearing it, but I think this call we've been focusing on operational excellence in terms of improving our margins, but the The growth perspective on that prior to us having these results these six months that Kevin and I have been keenly focused on are becoming a production machine. In addition to saving labor and increasing our margins from that, the concept really is to also increase throughput and make every dollar of revenue easier for us to go through because We both believe we're still at a point where our revenue is strictly limited by our ability to produce. I would guess, and this would be Kevin kicking me under the table, but I would guess we could add more people in the sales and have more volume once we get this thing smoothed out and the growth rate would continue. So it's very much these are all related issues, and we think we're positioning ourselves well to deal with them.

Understood. So final question. I'm going to keep asking every quarter and bugging you guys, but you guys are at the point where, you know, you guys should be NASDAQ listed. I know there's been, you know, other priorities, but, you know, I'm hoping, you know, by year end that that moves well up on the to do list just because you guys would see probably, in my opinion, you know, 50 to 75 percent bump. in your valuation very quickly for such a disruptive technology. You know, it's a shame that it's kind of lost in the shuffle here. You know, there's just no trading in the stock and, you know, we probably, you know, own about three and a half percent of the stock at this point. And, you know, we would like to hopefully, you know, have a plan in place for, you know, NASDAQ up listing by early next year. I think that would behoove everyone. It would help you to kind of, you know, increase the float in the stock. You can, raise some capital. Again, we're being very patient just because I would prefer profitability first, but I'm hopeful that that's on the to-do list for later this year. Any commentary there?

Sure. It's on the to-do list. I don't know about later this year yet. We made a mention about finance strength. We have a new controller in the business that started this week, actually, And that position hasn't existed here in maybe eight or nine years. And as you know, I've been acting as the CFO as well as the CEO, and we've been doing a lot of things that are just getting everything pushed through. So to do the uplisting, whether it's NASDAQ or potentially AMEX is a possibility. They each have their own charms, I suppose you could say. They each have also their own regulatory issues. We do have to button down things a little bit. We've got to get through our own inventory issue relative to the material weakness that's in process. I think it would be too aggressive to think that we would be able to apply the resources in time. and potentially people to get there by the end of the year. That doesn't mean it's not on the list. I think it's a very dear goal for all of us because we all know that we have some excellent results. And when you talk about the company's nanophase and solescence to people outside of the business, everybody that isn't savvy to what the market you're in means you know, are thinking that this is a rocket ship and it's going to be great and how wonderful that'll be. And the reality is we don't get in front of as many people being listed as we are today. And we all recognize that. And that definitely will be a priority after, you know, hitting the operational side. And those things are so intertwined because it will also cost a little bit of money. And, you know, we are funneling at this point, funneling our spare resources into making sure we get the operations right, generating more resources. It's a virtuous cycle. So I'm completely with you, John. We know that's an issue, and it's very high on our list.

Excellent. Well, again, I appreciate the input, and thanks for all your efforts, and I'm looking forward to kind of seeing what you guys can do. What's the price? price increases filter through and, you know, it's going to be really something that kind of have everything gel. So, you know, congrats on all the forward progress and, you know, thanks for your efforts. Thank you.

Thank you. And as a reminder to ask a question, simply press star 11 on your telephone.

One moment for our next question. from the line of Rand K. with RKA. Please proceed.

Good afternoon, gentlemen, or good morning. I have to be honest. While I am happy about the overall numbers, there are some concerns which you guys seem to have articulated that I think it's time that, you know, the issues become dealt with straight up. I'm going to refer to a couple of comments. One, the comment was inability to build more product. I didn't hear the word build more product profitability, profitably. Are we tired of the growing pains? We're very tired of the growing pains. And it seems like every quarter we are having, despite all these great accomplishments, you know, a disaster du jour, which keeps us from hitting numbers that we want to hear. Now, just by way of mentioning, you know, I own about 4% of the stock. I have been an investor for over 10 years. I have to agree with Tony who mentioned that, you know, some of the operational issues which, you know, you keep dealing with and seem to come across as, well, you know, we identified it and that's not going to happen again. And my take on that is that while you are having a world-class new product, you are not the only one to ever ramp up from a small company to a large company. And the kinds of growing pains that I think you guys are facing are primarily due to the fact that, well, let me put it very succinctly. I think that the hiring... mentality at the company is very unimpressive. There seems to be a problem. And then you want to get a lieutenant in there or a foot soldier to solve the problem. I'd like to see more, you know, guys with 20, 30,000 foot visibility who can avoid these problems, who can peek around the corner. Okay. And help avoid these situations. You hired a controller, you know, obviously that, you know, the controller is going to have his hands full, not going to have the ability, bandwidth, or time to think about, you know, going for a NASDAQ listing. John mentioned NASDAQ listing. I, too, am extremely concerned about the NASDAQ listing. And at this point, I am extremely concerned about the somewhat cavalier attitude about, you know, well, we're going to get to it when we can kind of get to it. I have to be, and I'm trying to be as polite as I possibly can, but I think there's a mentality here that, you know, well, we had a problem. God, we're sorry. We're frustrated. You're frustrated. These problems should not be cropping up. Okay? Not at this stage. And these problems are costing us money. And if we would put the money into the level of executive talent that is required to solve these problems, you know, we would have the ability to peek around the corner and avoid these problems. My major concern is, you know, even with the tailwinds that we are experiencing right now, The numbers aren't working. What will happen if the tailwinds abate or even turn into headwinds? And, you know, please understand, I think you guys have come a long way. But my concern is there's this intransigency and reluctance to look at your human capital issue, you know, eyes wide open. You have a world-class product. You are a leader in the world in this technology. You need a world-class team to get it to the market. And the shareholders... cannot bear the brunt of any more, you know, surprise du jour or surprise de quarter issues. So, I'm sorry to be so direct, but I'm quite frustrated.

Well, appreciate your feedback, Rand. Isn't that really a question there as much as obviously an expression of energy and how quickly we need to deal with it. I would say that a couple things, and I'm trying not to be cavalier about it, a couple things. I think that we've achieved last year some decent margins running at what we believe is a very inefficient operation, which speaks to the model being a good model. and the markets being good markets, and that's something that, you know, obviously is a helpful thing and a good thing. I do agree that we need to get this done faster, but I also know that just given the constraints that we have, you know, speed is relative, and you're trying to move a lot of people in a lot of directions that are all relatively new growing quickly, and that's, you know, that's where we're at, but I take it all personally in a positive way in terms of understanding accountability is an issue and it's on us to get this done as quickly as we can and if it's helpful, our board of directors and I know our majority shareholder pretty much share your view and it's been a, it's been, there's been a lot of energy on it and that's something that we are definitely focused on. It's just a question of actually getting it done. And I do go back to the rapid growth wouldn't have been possible in a more organized fashion. Now, we could argue we'd be better growing slower and making more money while we do it. That is an argument we can make that hasn't been the path we took. But it's certainly a point of view that I hear frequently internally. And it's something we're focused on. And that's something that's going to be the second half of this year is going to be heavily directed in that way.

Well, the one issue that I think I want to reiterate that John mentioned, and I would like to not see this slip anymore. I'd like this to be addressed. And that is relisting. You know, manana is not going to be acceptable much longer. You know, you want support of your shareholders. We want to give you support. You need to, you guys and the board needs to, you know, evaluate the importance of shareholders that have stuck with you. make this thing happen.

Okay. I hear that. Thank you. I'm hearing you. Sure.

Thank you. One moment for our next question, please. It comes from the line of James Lieberman with River Securities. Please proceed.

Thank you. I'd just like to comment that whereas I agree with some of the comments of the previous caller, that I'm extraordinarily impressed with how the company has been performing considering it's had to play defense to just stay in business for so many years while positioning itself that the stock has come from 35 cents a year ago to over $3 in one of the most difficult markets in history, in one of the most difficult environments in history, with lockdowns and COVID. And I think under the circumstances, this is a transition that is transitioning. I'm very pleased. Thank you very much.

Thank you, Jim.

And I'm not showing any further questions in the queue. I will turn it back to Mr. Jaskowski for his final comments.

Thank you, Carmen. Well, while our top focus is getting past some operational issues, another dear goal to us, as we just were talking about, is to get uplifted and also to increase the flow of information to our shareholders and stakeholders. That's been an issue. It won't happen right away. We know it's a critical part of our journey to build a more exciting and valuable company, and things do remain exciting right now. There's going to be some heavy lifting during the balance of 2022, but we know what to do. We've defined a path forward that we expect to help us enhance our value in all respects, and we're looking forward to delivering a big win for all of you and our fantastic team and everyone that has worked so hard and supported us in this process. We'll look forward to the next opportunity to discuss the business with you again in the next coming quarter. Thank you all very much.

And with that, ladies and gentlemen, we conclude today. Thank you for participating, and you may now disconnect.