Solesence Inc (SLSN) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nanophase Technologies Corporation third-quarter 2015 financial conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference may be recorded.

The words 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 this news release.

These important factors include, without limitation, a decision of a customer to cancel a purchase order or supply agreement; demand for and acceptance of the Company's nanocrystalline materials; changes in development and distribution relationships; the impacts of competitive products and technologies; possible disruption and commercial activities occasioned by terrorist activity 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 turn the call over to our host, Mr. Jess Jankowski, President and CEO.

Thank you, Andrea. Good morning, everybody. We are glad you're able to join us to discuss our third-quarter 2015 financial results and business updates. Frank Cesario, our CFO, has joined me again today.

During this call, we will be talking about some new products as well as updating you on our existing business and 2015 third-quarter results. We talked about growing revenue as we entered 2015. And then we took a hit from our largest customer, and discussed how our other new revenue was filling a good bit of that shortfall, as opposed to helping us expand our topline.

That business has returned, and we have caught up with last year, which means that we once again expect full-year revenue growth. Although sales to our largest customer were still down nearly $1 million through nine months, this shortfall has been reduced to the point that other revenue has covered the gap, and the fourth quarter looks stronger than last year's.

The current state of our business is stabilized. And even given the change in volume from our largest customer, we expect some year-over-year revenue growth in 2015. We live in and manage to a highly variable business climate as we operate Nanophase. Even with the ups and downs, as Frank will share, we continue to control the cost side of the business very well, even as we see more growth coming.

On the contribution side, this sort of variability reinforces our strategy to develop new customers and new products, whether in existing markets, adjacent markets or in wholly new markets for Nanophase. This is something we will talk more about after Frank provides a short overview of our financial results.

With that, I'll hand things over to Frank.

Thanks, Jess. Good morning. This is Frank Cesario. Before I begin today's overview of our financial results for the third quarter and first nine months of 2015, please remember that all financial results are stated in approximate terms.

Revenue for the third quarter of 2015 was $2.8 million versus $2.7 million in 2014, with gross margins of 32% and 30%, respectively. The net loss for the quarter was $0.2 million or $0.01 a share for 2015, versus $0.3 million or $0.01 a share for 2014. On a year-to-date basis, revenue was $8 million in 2015 versus $8.1 million in 2014, with margins of 30% and 31%, respectively. Net losses were $0.9 million or $0.03 a share for this year and $0.8 million or $0.03 per share in 2014.

I note that our business generated net cash during three of the past six quarters as measured by adjusted EBITDA, including the second and third quarters of 2015. We ended the third-quarter 2015 with a $1.2 million cash position and $200,000 drawn on our working capital credit line. Many of you are aware that we have a $1 million cash covenant related to our exclusive supply relationship with our largest customer that we disclose in more detail in our SEC filings.

It remains our intention to focus on small amounts and short period vehicles, such as this credit line facility, on an as-needed basis. During September, we borrowed on this credit line strictly as a precaution, to meet contractual covenants, then repaid this borrowing in early October. Things could certainly change at any time. We may conclude at best to seek a small amount of additional capital, but this is the way our Company approached 2015. Again, should we seek additional capital we do not expect it would be a significant amount.

Jess?

Thanks, Frank. In the past, I've reviewed all of our major areas of focus. But today's emphasis will be on new revenue traction. In personal care, which is composed largely of our active ingredients for inorganic sunscreens, we continue to sell a significant amount of zinc oxide into the marketplace.

In addition, as we have announced, we received a patent on a new coating that we refer to as C-3. We don't normally talk about patent issuances in much detail, but I think this one is especially important.

C-3 is a new type of coating that we believe will both enhance the aesthetics of a sunscreen, in terms of better skin feel and reduced whitening, and also address the hot button topic in the industry by aiding photo stability, which inhibits the formation of free radicals. We've proven the value from C-3 in our first two titanium dioxide sunscreen products, both being dispersions this time, versus dry coated powders.

We understand that the efficacy of these products has been demonstrated to a large number of potential customers in North America and Asia. We are currently preparing to convert sample fulfillment into commercial revenue. We have now successfully applied C-3 to zinc oxide, and plan to develop additional new products that we believe will have a competitive advantage over those already in the personal care market.

To enable us to better serve this market, we've added a full-time formulator to our team, the first ever at Nanophase. They will allow us to better build products that will perform in their end-use formulations than we could have in the past. This not only adds to our depth in personal care, but also allows us to respond more quickly to changing market demands.

We have become more market-facing all the time. Essentially, we have positioned ourselves to move further up the value chain.

Going forward, we don't expect C-3 to be used solely for personal care, nor do we expect to only enable solutions involving titanium dioxide and zinc oxide. We view it as a coating platform that we expect to be applicable across many product areas. We look forward to continuing to exploit this competitive advantage in the marketplace as we further develop this technology.

On the energy front, specifically in the solar control area, which refers to several applications involved with improving energy conservation -- think of the films used on vehicles and buildings -- we now have growing revenue that has quickly moved from five figures to six figures. We are seeing customers and applications expand through this year, and we see what could be some significant products coming down the line as we enter 2016.

This is becoming commercially real and not simply a development project. We expect growth here going forward.

As far as our base business goes, as we discussed last time, we've also seen existing customers and applications expand during 2015. We think some of this is due to increased demand for existing products, some is due to cyclicality, which can be challenging, and some is due to new applications development on the part of some of our customers.

This last piece, the new applications development -- which, in these cases, we're often not directly involved in -- reinforces our view that lead-times may be far longer than we like, but that customers see value in formulating with our materials nonetheless. This affirms our belief that our technologies provide benefits that are not achievable through other means.

As I have shared, being conservative, we've seen meaningful new business revenue in 2015 and we expect more in 2016. We've seen ourselves climbing out of an early hole in 2015 to a point where we are posting better numbers than the previous year, despite a decrease from our largest customer. This growth is due to revenue from sources that were not in play last year.

Finally, we see 2016 as being stronger than 2015. While we always want to swing for the fences when we can, we are still hitting singles and advancing our company. Although 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 share your comments.

Andrea, would you please begin the Q&A session?

(Operator Instructions). Barry Blank, Cantone Research.

I had a question regarding the patent that you just talked about with sunscreen. What is the next step to getting this product into the hands of the companies that manufacture the sunscreen? And how long do you think it will be before they possibly will accept this?

Okay. Well, as some of our investors have heard, we have a fairly long time-to-market which can be frustrating. The next step is, at this point, with the titanium dispersions, they are in the markets. They have been sampled to more than tens of companies, both here and in Asia, so the next step is for those companies to do testing.

Now in our case, as I say, we have become more market-facing all the time. We have done a high degree of testing here relative to things like SPF, UVA blocking, some of the other things that are critical in those markets. So we have provided a data set to a lot of these customers so that they are out basically retesting the data. They'll go through it. If they like what they see, they will order it.

I would expect the serious volume not to happen until 2017, ramping in 2016. But at the point the Company is in today, our leverage is good. I mean, we could see ramping volume at the end of the year in the -- all the way up into the high-six figures, even low-seven figures, if that were to happen.

It's also distributed. We're working with somebody who wants these materials and is distributing through a series of companies so that could be broader. Relative to the zinc oxide solution, we are still early-stage there. We've sampled the very first of those out to the market, and that's going to continue to expand. I would expect if we get that out and running, it could very well also be a point where we'd see some level of ramp for -- in 2016 for 2017, and then more beyond.

But in either case, the numbers -- the terminal numbers could be pretty large. We currently have a business that's -- in our sunscreen area, that's probably two-thirds of our volume, and there's probably an equivalent amount of that business out there for us for this business to grow, if not more. And I think as we do that, we will continue to expand the personal care portfolio of Nanophase.

Okay. My second question is on this -- has this been tested for safety? And any more testing going to be needed on the safety aspect of the coating?

The coating is -- there's a few steps that you go through here, Barry. It has received CAS numbers and NQ listing, those are things within the industry kind of a little wonky, I know. We are -- we have done some in vitro testing; we will be doing in vivo testing.

On the safety side, it's kind of inside baseball. But essentially the coating is a combination of elements that are inherently safe in a different manner than they have been used in the past. So, there will be some testing that goes on, but we think it will be very limited at the customer side, and we don't think that there is a concern there.

I would also remind you and the other listeners that we've got more than one grade of material. Some are larger, some are smaller; that's really more of a marketing issue. There has been no issue relative to safety, as the nano side of it is concerned, and absolutely no issue relative to safety of zinc oxide.

TiO2, each country treats it differently; very popular in Asia, considered very safe. Europe -- United States, not as popular; Europe, a little more popular. It just depends whom you ask. And it also has to be contrasted with what we are competing against, which is typically organic chemicals. And the organics are also not the best things to have on you on a regular basis.

And some of the people that have been following the Company for a while. The market -- sunscreen has migrated from, 10 years ago, everybody was wearing sunscreen at the beach. And now the bigger part of the market is really in what we call daily wear. I put a post-shave balm on today that has SPF protection and UVA protection.

As it becomes in the context more and more often, what becomes critical is that you get less skin irritation, the free radical component of the C-3 coating is a big plus because that's what causes some of the skin irritation. And it's also we are seeing that people are wearing this every day, primarily in women's makeup, but also in men's skin treatment products. And we think we have a nice play here relative to the efficacy of inorganics, which inherently are easier on the skin, and we believe are safer than the organics.

Okay. Just one more quick question. Is the -- what is the -- I mean, you obviously have a patent for this, but in this other -- probably other companies working on the same type of compounds, things such as this, do you know of any competition that's close to you, or that could come to market around the same time?

I would say the -- it's more likely that there are competing technologies, then there is something that's going to compete directly with coating. So far, in our own testing we see that we have a higher rate of UV blockage and a higher rate of free radical inhibition than what's out there in the market.

I think the issue is probably going to be there are some nice organic chemicals out there, but they are organics, which have their own set of problems. And people will continue to tune those and work with those to try to make them more efficacious.

This market has been segmented to a point where, historically, before we talked about UVA and UVB even, it's only been the last several years people have been talking about that more. Historically, you had a segment of the market that preferred inorganic, they were either all-natural or more natural, their minerals-based.

The market is growing. And one of the things that we are assessing and pushing for, and we think that C-3 may very well help, is to allow us to migrate even further into that realm of -- I don't care what it is, as long as it works, and hey, if it's safer, that's great. We're allowing more consumer claims. I think we are in a good position there.

There's always going to be competition. This industry changes rapidly. Part of the reason we brought the formulation expertise on is because if you take one shot at a time, you'll see that -- I go to these shows every year all over the country, and it changes rapidly, consumer claims are a big deal. And we think we are in a better position to react to those things, as well as to potentially drive some ways to get this into the market.

Okay. Thank you very much.

Thank you.

(Operator Instructions). James Liberman, Wells Fargo and Associates.

It really doesn't seem like you're making significant progress, maybe you're even understating at this point, because it's taken a long time. But isn't this the best or one of the very best September quarters you've ever had?

It's certainly relatively -- it's strong. It's true, we are looking at each other right now, Jim, because this isn't our goal. Right? $3 million isn't in our goal. So when we look at that, we don't really measure, okay, 2.8 is better than 2.7, so it might have been 2.5, that's okay. But to us that really isn't where we are focused. We're focused on getting these new products out and changing that equation.

But yes, certainly our bottom-line, our adjusted EBITDA are historically strong. We have never posted positive adjusted EBITDA two consecutive quarters, three out of six. That is new territory for us, and that's why Jess is referring to hitting singles. We'll take it where we can get it and we thank you for that.

No, but I -- the other thing is -- and this is probably the harder part from your standpoint, but can you talk about -- I think you were saying existing customers' new applications. I'm assuming you can't talk about any of that, right?

Well, yes, I can say -- I can tell you this, Jim, that -- so we've had, as you know, we work with some companies that have multiple customers under them. And my fondest wish is to be more direct, just because the more we are selling to the end-user, the more control we have. However, in some of these cases, we've see materials that have probably been in the pipeline for multiple years that are now being issued into the marketplace.

So I expect, as we go forward, in our coatings business, for instance, is not an area that we are focused on relative to new product developments in a big way, because we see bigger opportunities elsewhere, but some of our customers have continued to develop applications and are seeing things work very well. So, without sharing what I can't share, I think going into next year even, we're going to see more traction. And you're going to see customers that we haven't seen as much business with over time be more significant.

Our coatings business is probably going to increase year-over-year into 2016; it's increased this year for certain customers. And I -- what I like about that is that while I find it frustrating, and I know you find it more frustrating, that the growth doesn't happen quickly and we have this long time-to-market, it's also affirming that we have some advantages here. But in cases -- you know, perfect example is, any case where we have -- we are involved in a coating that has to be outdoors, is a case where a couple years with the freeze spa testing and all kinds of UV testing, et cetera, and those things take so long to get in there, I think we are seeing some of those things pop also.

With the addition, the way we've changed, I wouldn't say we pulled a 180 but we certainly had a marketing and a technical makeover over the last several years with the addition of Kevin Cureton, the way we're approaching markets is different. I think we're going to get to a solution quicker. We're going to get a resolution, whether it's yes or no, quicker. It's frustrating when the answer is no, but we are moving faster than we have in the past more entrepreneurially. And I'm excited about it.

So one of -- I'm enthusiastic by how you're responding as well. And could you also comment further about the polishing technology? I just feel like you've been saying that there's a lot of improvement you're seeing and more traction coming. Are you seeing that continue to broaden out?

A couple of things relative to the polishing. We have launched a few new products this year, we were at the OPTiFab show in New York a few weeks ago. By the way, I'm going to apologize for my voice today, I've been coughing -- with all the traveling, picked up something. But we launched two new products. We are seeing some initial results that seem positive.

What we didn't see was the amount of growth we expected in 2015. And so in that case, it's been disappointing. We are seeing some things continue to move forward. And from a developmental perspective, we are putting more of our resources right now into developing more personal care options, and working on the solar control space, just because it's a place where we need to get those products fine-tuned, we need to get more out there.

The polishing side is more managing some customers, trying to get a few new customers on the sales side, and also just picking our battles kind of where the -- as I had mentioned in the past, some of those customers are relatively small. And so you've got some great customers -- and they're all great customers; I like -- you know, I love all of our customers -- but we've got some great customers that are in that $100,000 a year range in volume, which is great for us at this point in our lives.

You also got some great customers that are at -- if we win it, it's a $5,000 a year volume. And it's just not worth it. So that, on the polishing side, we are kind of migrating toward a set group of products, going through the markets, looking for bigger targets, or ones that require less care and feeding on our part. Because really, at the end of the day, we are a$10-million-plus company, $10-million-ish, I should say, with between 40 and 50 employees, and we really have to be careful on how we spend our market and sales funding.

Thank you very much. I did notice also in terms of the zinc oxide, the C-3 product specifically, that you're saying that there may be other products. And are these all in the skin care area and all deal with UV protection? Or are there other things going on?

Initially, they will be in suncare. And zinc oxide is a great solution in suncare. And one of our targets is that, historically, all the way back -- and a lot of you have heard this a lot of times, about the white noses on lifeguards from 20 years ago -- you know, zinc oxide is a wonderful product. Just inherently, the mineral is just a great thing to have. However, it's whitening.

And we believe one of the reasons that zinc oxide and titanium dioxide have a whitening component is because that they -- especially when you're talking about small particles like ours, they glomerate when they get into the -- or stick together when they get into the final solution that you put on your skin. We think that using this coating allows the particle to hold together, not break down as quickly. And part of the breakdown causes some of the issues with suncare.

And more importantly, putting it in a dispersion means that putting the dispersion of what a major -- of a liquid that's a major component of the sunscreen anyway allows a better mix as it goes in. That being said, Jim, there are opportunities in other areas that we are exploring. One of them is FX pigments. Those are things that lend features like pearlescence and other things like that, they degrade over time in the sun. And you have that in a lot of makeups.

You also have that on industrial articles like cars and things like that. We are starting with personal care because it's in our wheelhouse and we have a lot of experience there. I think it will expand beyond that, and I think it will probably expand to particles that we don't make or haven't even considered. Because the coating, the patent is broad enough where the coating could be placed on pretty much any inert material. And there are some good opportunities there. We have -- time is going to tell, and we're going after what we know how to go after first, but I see this as an area of growth for us.

Thank you very much, and congratulations with the transformation you're implementing.

Well, thank you, Jim.

(Operator Instructions). Rand Kay, RKA.

Listen, I have one question, which has to do with a little bit with marketing. In the last conference call, Jess, you seemed apologetic about the fact that there was -- I believe the words were we misjudged the timing on the situation. Okay. And I am -- I completely understand that I don't know if you would call the technology disruptive, but it certainly is new, innovative and page-turning.

I guess my question is, is that what have you garnered from your marketing efforts that you are doing slightly different or you may have missed before, that you think is going to let you get down to the finish line or cross the finish line in a fashion that's more in tune with expectations -- your expectations, as opposed to new facts kind of dribbling in here and there that would cause you to postpone your thinking? Or your conclusion?

Sure. We've got other feedback behind yours on that particular comment. And I would say that -- I mean, first of all, we continue to try to narrow our focus, because the more you know about something, the better you are at it. And I would say that the nature of the business is, we go to market as quickly as we can. And many times being in the market is really better marketing than trying to do research ahead of time.

So with respect to the batteries, I think had we waited a lot longer, we would probably have found out the same thing. We might have approached it differently relative to our expectations, but I think we still have a viable product there that potentially, while not disruptive enough to get them to jump on it, I think we learned that, okay, this business operates in a certain manner, there are certain things that we understand better now than we did before.

And going forward, we have decided let's not put a lot of resources into further developing the technical end of this. We are going to continue to follow up on the sales side. With respect to the new business we are building, looking at personal care in particular, that's a market where we've been in basically since 2000.

We looked at it -- Kevin has a background in personal care coming into the Company that's solid. He has been selling it to the area for a while. I have been in and our R&D people, even our Operations people have been all over this personal care business, not just through BSF, but also through -- we started doing a lot of our own work and a lot of our own marketing probably five, six years ago, going to the shows and trying to figure out where it happens. It moves a little more quickly. It's not quite as technical as some of these things, the marketing claims are critical.

I think we have a deeper understanding. But that said, we are not a full-blown personal care company. I'm sure we'll have missteps here and there, but I would say that I can see a lot more coming, see what's happening. We were able -- for instance, we have a product that we sell through a BSF called Z code LSA, which is a low surface area product. And we looked at that, suggested that was a good idea based on seeing some demand at the shows.

Demand hasn't been as high as we wished it had been. Demand still exists. That was something that we determined on our own by looking around and seeing what people were saying in the market.

We have a very deep level of understanding of a lot of these areas in the market. And also I would say it's more available to us. We brought a formulator on this year. There are contract people out that can help us do things. I'm very much against the not-invented-here mentality that some companies have. We brought a lot of consultants in the business. And one of the reasons that we've slowed down on some of the coatings is we brought some really good coatings consultants in here and said, hey, this is where we want to go; what do you see? Well, we see a narrower path, so we execute on a narrow path and we go for it.

I know your ultimate question is, can you tell me you're not going to do that again, and come back and tell me that we've got an issue. And I would say with not understanding the market, I'd say I can't tell you we are never going to do that again. I can tell you that each time we do it, we know more.

In terms of the solar control application, for instance, we have less knowledge. We are working more directly with a couple of partners there trying to figure that out. We have less control over it. We have a really good solution. It has, we believe, a bigger benefit than what we've seen out there in the marketplace. And we have done our marketing work. But personal care is definitely a strength area.

I would also say that in the solar control space, we know more about it now than we do about batteries -- even that. And part of that is the nature of that business. On the battery side, we get frequent requests saying, hey, this is great. Where are you going to be in rechargeable lithium batteries? And well, our application really was an alkaline battery, which is a different slice of that market.

So, we do whatever we can to move up the value chain. We are looking for more valuable places to be. But we also, again, try to hit singles when we can. We try to do it. And I've got business in my portfolio now, Rand, that -- I've got a couple of customers that I certainly won't name, that are our lowest-margin regular businesses that generate cash. They are the kind of businesses that -- you know, we are the kind of company that needs to be hardscrabble and grab those businesses.

That's not how we're going to build the long-term future of this Company. But that is the kind that we have to chase, given the situation we are in.

Well, my -- I guess my question -- then it's two follow-up questions. One is, the energy market, is it a matter of when, not if? Or is it still a matter of if? Is the first question.

Well, we have commercial revenue there now. And that's going in products that are out on the street. So, in that sense, it's a matter of when.

In terms of it exploding and being multimillion dollar market, I think that's a matter of if. I mean, I think there are forces that play always when you are a small company and you're competing with larger companies that occasionally can cause things to slow down. I mean, one of the frustrations that we have -- and I know you have and our other investors have -- is that when you're both selling to or competing against a giant company, there are people that prefer not to deal with smaller companies. So your technology has to be all the better.

In the case of personal care, there are a lot more opportunities, a lot more bites at the apple. In the case of solar control, there are several bites at the apple. It's a fairly consolidated market, but we have people we're working with now. We have revenue coming in the door now. We have demand now.

So I think it's more of a question of -- the when is now, it's happening. If it's going to be major revenue or just nice revenue is the question. It's nice revenue right now. It's going to grow next year. We like the quality of the revenue was good. This is the kind of thing that I think this Company is built to make.

If it ends up becoming a huge business for Nanophase, it would be the kind of business we would always envision. Because what we bring to the table is unique to Nanophase practically in terms of how to engineer a particle and do all the things that are required to do that. But I think those opportunities are tougher to find and they take longer to get into. And part of that is just materials development.

Are you alluding specifically to the more promising technology of the two as the solar control?

I think the solar control is more promising than the battery technology in a couple of ways. The commercial volume that we have right now, although still not large, is growing. And it's in the six-figure range. That is -- what we are selling there is an enabler. It's allowing the producer to get results that are difficult to get with other materials or impossible. Whereas on the battery side, we are allowing them to save costs; we are allowing them to replace a more expensive material, albeit a material they don't use a lot of in each battery.

So, the batteries are going to keep going, whether they buy our materials or not, particularly alkaline batteries. Whereas on the solar control side, I think that market is smaller than it would be if the solutions weren't stronger, which ours are. Also I think we can compete on a value basis better than what's out there.

So I think that has more room -- has more legs for expansion, more room down the line and provides a bigger benefit to the customer. One of the frustrations that I know you have, and our other investors have expressed about the last call, is, gee, you went after this opportunity to find out that a giant company buys a fair amount of it, but it's not important enough for them to jump on.

Well, that's going to happen. In this case, we are really a big part of the enabler for the product. And in that case, we are a nice addition to replace a difficult-to-find material. That being said, I'm not done with batteries. I think there's volume here. I also think that the material that we are hoping to replace is -- has historically been a volatilely-priced material in the market. And if that volume goes up again, it could go up 5X from what it is now -- it has historically. And if that happens, all of a sudden it will be a more attractive business for us.

And the last part of the follow-up question, maybe more actually a comment on it, is that -- while I clearly understand the need to take significant risk for significant reward. In our kind of preserving -- preservation of cash kind of mode that we are in, in order to avoid further dilution, okay, I'm wondering how much that takes into account, or you take -- or you and Frank take that into account, in the marketing decision going forward. And why -- and if that is beginning to sway your thinking to maybe the best way to proceed is continue to hit singles and doubles in a market we have more knowledge of until we build cash.

And as we build cash, we can swing for the fence in some of these other opportunities without going to capital markets. Is that a kernel of concern at all for you guys?

This is Frank. I'll try that one. That's always in our decision process, Rand. You know, if we had unlimited capital, we would have a lot more people, we would be developing more projects, we would be in a lot more areas. What we do is we try to balance.

So we go after the best opportunities, both in scale and in time. And we prioritize. And we regularly look at, okay, what are we chasing and how do we want to adapt?

So as Jess brought out earlier, we put a fair amount of effort into the polishing side over the last couple years and that revenue has grown. We've launched new product in that area, but we have now developed a good suite of products. So we are putting our development into the personal care side and the solar control side, trying to get ahead of those markets.

Again, unlimited capital, we can do even more things. But it's limited and intentionally so. If we see a market that we think this is the winner, we are going to find a way to fund it, that's what we are going to go do. But understand we are also not going to just throw money at, okay, we would like something to happen. We try to do this with a good amount of judgment, and I think our financial results are showing that.

I would add that, to an extent, I always wish we had more powder basically to burn, because I am a believer in what we have here. I think we have some great technology, and I think we are on the cusp of really moving things forward.

That being said, we are moving -- if you look at the personal care business, as it expands, we're going to need to put in capital equipment. And if I had money sitting here, maybe I would do that prospectively instead of trying to fight for it. At this point, we are more aggressively making sure we've got the business, maybe we get some support from some customers somehow or another, in how we deal with it.

And I think that's a healthy discipline. I mean, we have capital available, both dilutive and non-dilutive, if we have a very clear-cut business case that's -- nothing is guaranteed, but that's more or less guaranteed. I think we are not quite there yet with a lot of these businesses. And until we can be there, it's not for me to want to say, hey, if I had another couple-million dollars to spend on capital, would I spend it today? I would probably dribble it out until we get to this point.

We are being conservative by necessity. We are learning as we go. I think we are getting better at this all the time. And I do think while this is frustrating to hear on the other end of the phone, that we should already be better and best at and know how to do it.

The materials business is tough because you just -- longer lead-times, it's not software, it's not equipment even, to get in there. And I think we are approaching it with a balance. I think historically if you look back, we are taking an approach now that had we taken this approach 10 years ago, we would probably have a lot more capital to invest toward it now. And hindsight is always 20/20. My hindsight sometimes can be 20/10, which is a shame. And so I just choose to look forward and think that we are doing the best we can.

And I clearly appreciate that. Just one more follow-up, I'm sorry. Based on last-quarter, looking forward, do you think the need to go get more capital -- from the capital -- do you think it's more likely that we need to go to the capital markets? Or less likely, based on this last quarter versus this quarter?

I don't think last quarter made much difference. And I say that because we had a small positive adjusted EBITDA, we generated some cash. It was a small amount. To that extent, I would say it's not impactful.

What we said going into this year is we know we don't have a lot of cash relative to the $1 million covenant, and that we can manage it with small short-term vehicles wherever needed. And we are now into -- getting into November, and that's proven true. So, nothing has changed that plan.

Is 2016 a new year? Sure it is. And we will decide what to do, based in large part, as Jess is alluding to, on the business. If we have some large contracts to fulfill with new products, and that requires us to spend six figures on capital assets, we will go do that. And we will do it in the best way that we can find, whatever that is. But specifically to your question, I would say the most recent quarter really is neutral with respect to capital.

Okay. Guys, thank you very much for your ear and your time. I appreciate it.

Thank you, Rand.

I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Jankowski for any closing remarks.

Thank you, Andrea. In terms of the direction of the Company, the quality of our pipeline, and the potential commercial value of our technology, I am a strong believer in what we can achieve at Nanophase. Our leverage remains good. Thanks again, all of you, for joining us today.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.