Nanophase Technologies Corp. has a market cap of $23.3 million; its shares were traded at around $1.1 with and P/S ratio of 3.7.
Highlight of Business Operations:Total revenue increased to $2,076,214 and $7,416,186 for the three and nine months ended September 30, 2010, compared to $1,721,481 and $4,737,302 for the same periods in 2009. A substantial majority of the revenue for the three and nine month periods ended September 30, 2010 is from our two largest customers. See Note 7 to the Financial Statements for additional information regarding the revenue the Company derived from these customers for the three and nine month periods ended September 30, 2010. Product revenue increased to $1,925,320 and $7,100,265 for the three and nine months ended September 30, 2010, compared to $1,633,653 and $4,431,199 for the same periods in 2009. The increase in product revenue was primarily attributed to increased sales to our largest customers.
Other revenue increased to $150,894 and $315,921 for the three and nine months ended September 30, 2010, compared to $87,828 and $306,103 for the same periods in 2009. This increase was primarily attributed to recognizing revenue in connection with a research project during the third quarter of 2010, which was partially offset by the cessation of deferred revenue that was associated with a customer note until it was fully repaid during July 2009.
Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $1,602,438 and $5,258,246 for the three and nine months ended September 30, 2010, compared to $1,264,058 and $4,009,345 for the same periods in 2009. The increase in cost of revenue was generally attributed to increased revenue volume, net of efficiencies related to this increase in product flow. We expect to continue new nanomaterial development, primarily using our NanoArc® synthesis and dispersion technologies, for targeted applications and new markets through 2010 and beyond. At current revenue levels we have generated a positive gross margin, though margins have been impeded by not having enough revenue to efficiently absorb manufacturing overhead that is required to work with current customers and expected future customers. We believe that our current fixed manufacturing cost structure is sufficient to support significantly higher levels of production, given current revenue mix and resultant product revenue. The extent to which margins grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to continue to cut costs and pass commodity market-driven raw materials increases on to customers. As product revenue volume increases, this should result in our fixed manufacturing costs being more efficiently absorbed, leading to increased margins. We expect to continue to focus on reducing controllable variable product manufacturing costs through 2010 and beyond, with potential offsetting increases in the commodity metals markets, but may or may not continue to realize absolute dollar gross margin growth through 2010 and beyond, dependent upon the factors discussed above.
Research and development expense decreased to $388,231 and $1,178,306 for the three and nine months ended September 30, 2010, compared to $433,593 and $1,218,712 for the same periods in 2009. The net changes in research and development expense was largely attributed to reduction in depreciation (non-cash) expenses and legal fees partially offset by an increase in salary expense. We do not expect research and development expense to increase significantly during the fourth quarter 2010.
Interest income decreased to $3,580 and $19,844 for the three and nine months ended September 30, 2010, compared to $15,990 and $74,284 for the same periods in 2009. The decrease was primarily due to decreased investment yields and decreases in funds available for investment.
Our cash, cash equivalents and short-term investments amounted to $6,784,127 on September 30, 2010, compared to $7,493,997 on December 31, 2009. The net cash used in our operating activities was $540,549 for the nine months ended September 30, 2010, compared to $2,839,057 for the same period in 2009, which is a direct result of a significant increase in revenue (approximately $2.7 million), and to a lesser extent the positive impact of certain cost savings initiatives. Net cash provided by investing activities, which is due to maturities of securities offset by capital expenditures amounted to $3,401,562 for the nine months ended September 30, 2010 compared to $4,874,876 for the same period in 2009. Capital expenditures amounted to $152,169 and $141,037 for the nine months ended September 30, 2010 and 2009, respectively. Net cash used in financing activities decreased substantially, from $1.6 million during the first nine months of 2009 to only $6,000 during the first nine months of 2010, due to principal payments on an equipment loan from BYK-Chemie being fully repaid in 2009.
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