Good day, ladies and gentlemen, and welcome to Nanophase Fourth Quarter 2018 Financial Conference Call. [Operator Instructions] As a reminder, today's conference is being 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 the 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 impact of competitive products and technologies; possible disruption in 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 Jess Jankowski, President and CEO. Sir, please begin.

Thank you, Mark, and good morning, everybody. I appreciate everybody being here and those choosing to listen later online. We're happy that you're able to join us to discuss our fourth quarter and record full year 2018 financial results and, of course, business updates. I'll discuss the growth we're seeing with our Solesence products, some temporary setbacks within our personal care ingredients business and critically, the improving outlook for our minerals-based sunscreens. These market dynamics continue to validate our strategy of focusing on the sun and skincare markets. Our CFO, Jaime Escobar, is unable to attend today's call, so I'll cover the financial component of this call in my comments as well. Our 2018 total revenue was $14.2 million, a new all-time record. It was up by 14% or about $1.7 million from 2017. Solesence had a good year, but we're expecting even better in 2019. We had $1.3 million in Solesence product revenue in 2018, which fell short of our expectations by about $600,000, most of which we expect to recoup in 2019 in addition to further growth. We'll expand on that later in the call, but suffice it to say, Solesence has some nice traction. This excellent progress was somewhat offset by a reduction in demand for our architectural coatings products of about $1.2 million and reductions in the other industrial businesses, some of which may be temporary. But going forward, we don't expect these products, part of our advanced materials business, to be a growth driver. The rest of the increase in 2018 revenue was driven by a temporary upswing in unit volume of almost 40% in our personal care ingredients business, which is composed mainly of active ingredients for skin and sun care products. We don't expect this new revenue to be repeated in 2019, leading to lower revenue volume from personal care ingredients this year. I'll speak more to this developing situation in a few minutes. Throughout 2018, we continue to invest in product and market development for our Solesence suite of fully formulated skincare products. We also worked through many startup-related issues and delivering these products to a new and different market, relying heavily on outside contractors for processing and filling, often a cost that significantly exceeded our estimates. Let me give a quick overview of financial results first, then I'll follow with more discussion of our strategy, its execution and business development. Please remember that all financial information is stated in approximate terms. Our 2018 fourth quarter revenue was $3.1 million compared to $2.6 million in 2017. We experienced an increase in our net loss quarter-over-quarter at $1.1 million or $0.03 per share in 2018 compared to $0.2 million or $0.01 per share for the same period in 2017. These poor results reflected a series of things, some that also impacted our financials throughout 2018, some unique to Q4. The biggest factor in Q4 was our inability to get approximately $600,000 of Solesence finished products shipped. There were several contributing factors, the top one being that we couldn't get our outside vendors to fill, pack and ship our finished products as quickly as we expected. Let me get through the full year results, then come back to discuss some of the expenses in a year-over-year context. 2018 revenue increased to $14.2 million, achieving a new Nanophase record, up from $12.5 million in 2017, which was also a record revenue year. In terms of our cost of goods, two general areas require further explanation. In our personal care ingredients business, unit volume was at an all-time high. This volume came on suddenly generating added fixed costs and heavy over time charges. Additionally, due to the structure of our contract with our largest customer, this volume brought us to the lowest price volume tier accounting for approximately $500,000 of our second half loss when compared to the prior year pricing. This impact is more acute because the peak efficiencies in our production process reached at significantly lower levels of volume than we experienced in 2018. In cost of goods for the Solesence, as I mentioned, we relied heavily on outside vendors to process, fill and pack our consumer-ready finished products and a cost that significantly exceeded our estimates. Some of this was due to our newness to the business and a bit of trial and error learning on our part, some was due to the nature of any new product launch and some was due to small volumes being less interesting to some of our vendors and, in some cases, we paid to expedite things to avoid holding up any of our customers' launches. We have a plan in place to reduce a good deal of this cost relating to Solesence in 2019, with initial savings seen in Q1 2019 and maximum savings expected to be realized later in Q3. For 2018, we also saw increases in operating expenses relating to 3 areas. We incurred additional R&D costs for added staffing to support new Solesence formulations, outside testing and legal work relating to new patents. In SG&A, we expanded our product marketing cost, which we believe will continue to lead us to good results for Solesence going forward. And we also increased spending and outside consulting in IT, some of which was related to personnel changes and the related backfilling earlier in the year and some of it was to help absorb the increase in transaction volume that the companies are growing in consumer product-focused business like Solesence. Looking at our balance sheet, we also executed 2 significant loan agreements in Q4 of 2018; one for a term loan of $500,000; along with another for $2 million receivable base revolving line of credit. This liquidity has helped to reduce some of the working capital pressure as we continue to invest in building the Solesence business. In terms of where the business is going in 2019, I need to start with a refreshed definition of our product areas, each of which has a different strategic focus. We're now going to add a third product area, splitting out our personal care ingredients business from the advanced materials. The 3 areas will be; personal care ingredients, Solesence and advanced materials. The bulk of our sales as a company are currently of active ingredients, specifically into the sun and skin protection markets. We refer to this as our personal care ingredients business. This is where we sell coated and uncoated powders, occasionally in dispersions, to manufacturers of sunscreens or their suppliers. BASF is our largest customer here. The structure of our agreement keeps us further away from the ultimate users of our products, but we have a strong franchise here that is well known and well appreciated in the sun and skincare markets. Our second area is for the products market under the Solesence umbrella. These are fully formulated, consumer-ready products that we sell directly to various cosmetics brands, to be sold to consumers under those brand names and through their channels. This is where we're looking for the fastest and most significant growth going forward. Our third product area, with a newly amended definition, is what we refer to as advanced materials. This area captures our industrial products relating to coatings, a diverse grouping of customers buying higher-value specialties and the surface finishing or polishing products sold through our partner, MNS. Advanced materials represented about $2.3 million in sales for 2018 and remains good business for us, but not where we're investing for future growth. Most of advanced materials is composed of longstanding customers, whose use of our material has remained fairly consistent over the years, but has not grown significantly nor is it expected to grow significantly in the future. This is not an area for investment and development. Our continued support here will be through providing the high-quality products these customers have come to expect. In a minute, you'll see why the first 2 categories have become such a strategic focus for us as we discuss the market dynamics and the future of personal care ingredients and Solesence. We talk a lot about the advantages of minerals-based sun and skin protection versus chemicals-based alternatives. The markets we serve are seeing more and more demand for our mineral products and the demand keeps going up. There has been a worldwide shortage of zinc oxide and titanium dioxide, most notably -- noticeably to us beginning in late Q1 of 2018. This shortage is demand-driven, and we're in a position to increase capacity to meet new demand. In 2018, the increased volume for Nanophase was rapid and temporary, exacerbated by other producer reaching their capacity limits before we did. Global capacity will surely expand, with industry sources have been predicting a 300% increase in demand for zinc oxide, our primary mineral product, over the next 5 years. We don't know what share we'll gain from that growth, but it certainly supports all of the strategic moves we've been making to increase our focus on skin and sun care, whether on the ingredient side or on the finished product side. After those estimates came out about the expanded market, there has been some more good news. Last month, the Food and Drug Administration announced the first new proposal on sunscreen ingredients safety in decades. Our feeling is that this will potentially further increase demand for our ingredients in finished products. The proposal that's out for comment and it'll probably be modified somewhat before it becomes law, but the FDA's initial approach was quite surprising. Of the 16 active ingredients currently listed, in what the FDA calls the monograph, for use in human sunscreens in the United States, they've concluded that 2 are unsafe for humans. The FDA then classified 12 more of the 16 actives in a group saying that there is not enough data to determine if they are safe for human use. Combined, those 14 active ingredients represent all the ingredients currently allowed in the monograph that we refer to as chemicals-based sunscreens, that's 14 out of the 16. Zinc oxide and titanium dioxide, the only 2 remaining options in the current monograph, are the only 2 that the FDA has deemed to be safe for human use. I don't know where this will all end up, but it's a good thing for minerals and it's also a different criticism than we've been seeing recently of several chemicals-based sunscreens. The FDA is responsible for human safety. But chemicals-based actives have been subject to scrutiny and regulation in other areas as well. You may recall that over the past few years, some of the most common chemical sunscreens have been banned due to their environmental impacts. Australia, Palau, Hawaii, and the Florida Keys have banned these chemicals due to the fact that they contribute to coral reef damage. They have not found this to be the case for the 2 mineral products. These macro issues have been good for minerals-based products generally and are, therefore, good for Nanophase and Solesence, but it gets better. Historically, zinc oxide has been viewed as a healthy choice, but not necessarily a happy choice. Minerals are going to have a whitening effect, either due to their formulations or the quantity of active ingredients required to achieve good protection. This has been a market impediment. With our multiple technologies in this area first applied to the ingredients we've been selling for some time to our largest customer, and now our patented Active Stress Defense technology that we bring to market via Solesence, we're able to provide people with a much more pleasant experience than was typical with minerals-based sun and skin protection. We expect our personal care ingredients business to continue to benefit from this, but the leverage created through our Solesence strategy will allow us to achieve much more rapid growth, while requiring a lower investment per margin dollar. Further, the Active Stress Defense technology also allows us to formulate with non-nano materials and achieve the same performance. This presents another marketing advantage as it is an important feature to many consumers of cosmetics, particularly prestige cosmetics. In terms of consumer benefits, I mentioned that we spent a good amount of money on product testing in 2018. Much of this was undertaken to help our customers more effectively differentiate for products we develop to them under Solesence. Some of the key benefits we've proven are comprehensive environmental protection, including protection against pollution; broad spectrum UV protection, protecting the skin from damage that can be caused by both UVA and UVB light; and stopping the formation of free radicals, which contribute to premature aging, such as wrinkle formation and skin discoloration. These claims for Solesence products help the brands to provide evidence of anti-aging benefits, which continue to be one of the biggest drivers of demand from consumers. We've also produced some world-class formulations that feel great. That relates to our investment in formulation expertise and to the way our Active Stress Defense technology enables more effective and luxurious formulation. We're marketing Solesence products to luxury and prestige brands, and we're having good success, not just in terms of effectiveness, but in terms of feel and appearance. As we discussed in the press release, we enjoyed another product launch through a leading natural skin and body care products company in Q1, resulting in low-six figure launch revenue for the first quarter of '19. This product has already received recognition as being one of the best in its class. We have $1.3 million in revenue from Solesence in 2018, and we expect to achieve a multiple of that in 2019. Q1 looks good. And we're excited about our Q2 prospects, with launches currently planned for 7 new products. I know that many of you would like to know specifically which customers are launching which products. We aren't at liberty to disclose their names, but if you follow our Instagram and Twitter feeds, you'll get a much clearer idea of the types of companies we're working with. It's also fun to see the way we've transformed the company and the way we're really enhancing people's lives through healthy skin. I think you'll find the excitement to be contagious. In addition to following us on Instagram and Twitter, I suggest that you visit the Solesence website, which is constantly evolving. We're at www.solesence.com. Regarding the outlook for our personal care ingredients business, we expect dollar volume to be down by up to 1/3 in 2019. Our internal planning is for a $3 million reduction in revenue in this year compared to 2018. This is due to a combination of events, none of which, we believe, are indicative of market weakness. There was a panic in Q1 of 2018 when many suppliers simply ran out of zinc oxide. We scaled up quickly to meet as much of the demand as we could, reaching peak production in Q3. It turns out that there were some spot buys and some inventory buildings that we've been told not to expect to be repeated in 2019. The inventory build up appears to have been throughout the supply chain, but was not identified early enough to avoid some of the expenses we incurred. Additionally, we think other manufacturers ramped up production later in the year and absorbed some of the demand and there may have been some amount of customer reformulation. While we're not thrilled with this near-term reduction in personal care ingredients demand, we do expect increases in Solesence revenue to offset this reduction. While building this business, we're all working to increase profitability through better execution, cost management and entrepreneurial thinking to limit as much of the outside processing and filling as we can. I've been talking a lot about our investments in Solesence and the rapid growth we're experiencing. In light of that, I'd like also to talk a little more about working capital and our outlook in that regard. As many of you may have seen a few weeks ago, we renegotiated our agreement with our largest customer, BASF, to change the composition of the contractual quarterly cash minimums to a blend of cash, certain receivables and inventory. Effectively, our cash requirement at quarter close has been reduced from $1 million to $0.5 million. For those of you that may be new to this discussion, slipping below this cash requirement could lead to a triggering event and a technology transfer. This is embedded within the BASF agreement and it's something we've been dealing with for years. We believe that the trigger risk has now been materially reduced. This was a welcome and timely change because we're still subject to a good deal of working capital pressure due to our growth trajectory and some of the inefficiencies we're working through. To that point, it's likely we're going to need to finance additional working capital this year to ensure that we can continue to execute on our Solesence strategy. The unexpected variability in our personal care ingredients business has only added to the working capital pressures we are under for 2019. Given this likelihood, we expect to receive a qualified opinion from our auditor, RSM, for the 12/31/2018 audit that's always part of our Annual Report on Form 10-K. For an unqualified opinion, often referred to as a clean opinion, to be granted, the going concern standard under the GAAP accounting rules requires that a company shows sufficient liquidity to fund current operations for the 12 months following the date of the opinion. In our case, that would take us through Q1 of 2020. I believe we'll be able to raise additional capital and reduce expenses, if necessary, prior to a liquidity shortfall. But since we do not have any committed financing sources at this point in time, we fail to meet the GAAP 12-month standard. We're still working through the appropriate disclosures for the 10-K as well as completing some analyses and supporting information for the finalization of the document. Given that timing, we're going to request a standard 15-day extension for the filing deadline tomorrow. We shouldn't need that much time, but we'll need the better part of next week to get everything tied up. When you review our 10-K, you'll see in addition to the footnotes, that I think you'll appreciate, we've begun to break out the revenue generated by our 3 different product areas. Given that we found our growth engine in Solesence and it's the area of our business where we can exert the greatest degree of influence, I'm looking forward to reviewing our progress in future calls as we discuss our ongoing strategy. Although most of our investors listen to the webcast, will review the transcript after the live call, I'd like to invite those participating in today's call to ask any questions you may have or to share your comments. Mark, would you please begin the Q&A session?

[Operator Instructions] And our first question comes from the line of James Lieberman of Revere Securities.

So I'm actually going to say congratulations on being at this point in your development because it really means that things are beginning to happen. And, of course, this always -- for any company, this is always the critical moment where you're managing your cash flow while building inventory. And it's -- it shows a great deal of mastery to be able to do this, in fact. And it sounds like you're looking at all of the issues involved and what you need to do to get there. And really this indicates to me that you're really starting to see a significant adoption of your technology and the rollout of possibly numerous new products this year. Is that -- am I understanding this correctly?

You really are. We are seeing significant adoption. Kevin's going to be in a cosmetic next week in Paris. We have very good reception there. We'll be at Cosmoprof, again, in Vegas in a few more months. And everywhere we go, people are very impressed at how good the products feel and how good the products look with the efficacy of them being not quite as important initially. There's just an assumption, "Can you make this stuff with minerals-based materials that feel great, look good and they are healthier for me. I love you guys." We're hearing some of that. Relative to your other comment about working capital and managing inventory, it's been a slug and it's something that we are all over spending time on. Initially, initial order quantities and dealing with a lot of new vendors, takes effort and it creates a drain. On the other hand, what really creates the drain is the fact that we're growing rapidly. We went from $50,000 in revenue in 2017, which was essentially development revenue, to $1.3 million in 2018. And we're going to do a multiple of that this year in '19.

So in the past, you've been reluctant to talk in those terms in terms of a multiple of -- you've always said you hope to do a few percent, 10% or something of that order, given some very modest expectation. So this is -- to my mind, this is also a very different take where you really see yourself right now. And if I were looking at you from -- objectively, this looks like the best time to be raising money. Well, I know I understand the nature and the concerns, sometimes in the market, sometimes gets it wrong, but this is actually probably the most exciting I've heard you and the most excited that I'm in years to try to serve.

Well. I appreciate that, Jim. I mean, we -- we're -- this call is late enough that we'll be working on the 10-Q fairly soon. And we're looking at something on the order $900,000 to maybe $1 million in revenue in Q1. And Q2, we expect would probably be in that region. And then we've got plans for more growth in the second half. Now all that isn't as clear yet. Q2 is more clear, obviously. But this is all building and the other piece of it will be dependent on the reorders from the sales last year. Last year, we launched 5 products. I didn't get that number right, might be 4 or 5 products, and essentially there were initial orders, there were some follow-on orders. We're expecting a lot of that to happen, again, this year in addition to new products. Some are launched -- the launch I mentioned first in first quarter was with a new customer. Some are additional products going into those product lines. So there's a high degree of optimism around here about it, it's exciting, and we're moving and shaking to get it done.

That's great. And so in terms of the overall corporate structure, are you taking on, you think, too much basic sort of fixed cost overhead? Or is a lot of it really tied into the rolling out of inventory and meeting the product demands?

I'd say, it was a combination. On the working capital side, inventory is a big feature. In terms of the P&L we have added to our formulations expertise, we've added to our marketing, we're probably spending 70% to 80% of our business development and creative energy, if not more, on Solesence. So certainly, that has an impact. On the other hand, this is an area that we have a much higher degree of control over because we're dealing directly with the brand who is dealing with the customer. And many of them -- we have a lot of expertise here in these areas and many of them are inviting us to speak to their sales forces to lay in on better ways to achieve what they wish to achieve. And we're working as a partner and because of that you end up being really close to the market. So I look at it and say, as a company with all the resources we have and the fantastic technology, great people, where can we have the most impact and where can we exert the most control? And I think, clearly, the Solesence business is the place where time to market is faster. Our effort is more quickly rewarded. And we've got a little bit better visibility than we do in the other markets, including personal care ingredients, where occasionally, it could take up to 3 years for somebody to put a material on the finished product. In our case, we're putting the material on the finished product, we're running it through testing, it's approved and they're selling it. And I think, I don't have the information in front of me, but I think our record time to market might be in the 6-month range right now. And those things are possible, whereas they were really not possible with advanced materials, generally speaking, or with an ingredient that is so so far away from the ultimate product.

And our next question comes from the line of Ronald Prater.

Did I understand you to say that the order you expect or the order you have filled in Q1 is from a new customer?

Yes. The order we mentioned in the press release was the one I mentioned in the script as well is a new customer.

And the orders you expect in Q2, are those from new or existing customers?

There are 7 launches, a series of them are from existing customers, and there are a few new customers in there. We had 2 major customers last year with the rollout, the beginning of the year, the earlier year low rollout and then we had a rollout in Q4 into Q1. I don't have all the statistics right now available, but those are things that in the future we'll be more able to share. And with the disclosure, I mentioned in the K, that's something that I think will be really useful because these are the things, and this is what I focus on everyday, this is what our Board of Directors is focused on. And internally the entire management -- really the entire company is excited about Solesence, very focused on. We're ringing the bell every time we get new purchase orders, new products coming out and it's invigorating.

So do you expect to be cash flow positive in Q1?

Probably, but it's -- I'm not sure. In terms of total -- in terms of operating results be closed. And it's -- the reason that's hard to say right now is that we don't have March closed. I happen to know what the sales are because it's the easiest thing to tell, it's a very tip of the reporting spear. I don't have it all the rest of it for you. We don't have all the AP and there's always other things you have to do. But certainly cash -- working capital is going to be an issue this year.

And if you expect the legacy businesses to be stable and the personal care results as you forecast at $3 million less than '18, and with Colorescience meeting its minimum order expectations, do you plan to be cash flow positive in '19?

The -- our plan, as it stands, has us being EBITDA positive -- adjusted EBITDA positive for the year, which is approximated to operating cash flow. Some of that's going to depend totally -- total cash flow will be on a combination of things. We're investing in some capital, the capital equipment. And, of course, depending on how the volume flows this year, we are also expecting Q1 of 2020 to be a bigger quarter, which will require working capital investment in Q4.

Did Colorescience's minimum quantities increase in '20 over '19?

I don't have that information handy. I will say that they significantly exceeded their minimum quantities in 2018. And my expectation is that they'll do that, again this year. They do increase -- I don't have it in front of me. It's not something that I am -- right now that I am familiar enough with from memory to tell you.

Okay. But generally they increase over time over the next few years.

Yes. They increase over time and they also have requirements relative to the number of products being developed and launched.

Okay. What financing options are you exploring? And when do you expect it will be necessary to have those in place?

I don't want to get into too much detail there regarding which types of options we will explore. I will say that originally, we expected that in Q4, based on growth, we were going to need some support for working capital, thinking we're going to have a significant growth going into the following year. That's going to get pushed up potential and possibly not, it's just very close. And when you're an auditor versus a CEO, you have a different horizon and a different level of willingness to accept risk, I guess. And it may be that we don't need to do it. If we do, we will. And certainly, toward the end of the year, my hope is that we'll need it and that it will be readily available from traditional sources based on the growth we're expecting.

Okay. Could you explain again the reason for the reduction in personal care sales that you expect in '19?

Sure. A few things happened. There was a -- there were some spot buys. So that's typically indicative of somebody who has -- may have had us as a second source, couldn't get materials from their normal source because capacity was so limited, and came to us or came to BASF in that case to do it. And that appears to have been a significant volume piece in the year. And that wasn't necessarily known as what it was earlier in the year. I mean going into -- the time we got into Q3, we were pretty excited about the thought that this might be repetitive volume. That was a large piece of it. I also think there was a reaction. And some of this -- I am not as close to the customers in this business, the end-users, some of this is intuition or trying to reduce what happened. But I think there was a panic because people couldn't get material in Q1. And I think there was almost a global buildup of material and inventory to a degree, which is causing the downturn in this year. The market will be higher in 2019 than it was in 2018. And they're talking about growth beginning -- one of the studies I've seen talks about growth beginning in 2020 at 35-plus percent annual growth rate and that's before the latest regulatory information. So I do think that a lot of that will swing back. I think the market is really strong. I think we're in a great position. We now have -- our capacity increase was twofold. We increased to a 24/7 kind of a Canadian style 4 shift operation as well as we refitted some of our equipment to expand capacity. We're now in very nice shape relative to be able to react to capacity. We could satisfy more capacity than we did last year. With the physical assets we have in place, we would, of course, need to increase people power, but in the sense of our ability to respond is pretty high.

Okay. And one last question. How much money do you think you will need to raise to roll your existing loans and meet your working capital requirements?

It depends. At this point, I don't know because I -- as I said, it's quite possible we're not going to need to do it until we get toward the end of the year, which was something that would be driven by growth. If we do that, it could be $1 million in credit or something like that. I'm not sure. And it's hard to even speak to because of the fluid nature of things. The business is going up and down. One of the things that the long-suffering investors on this call know is that to a degree, we don't have a high degree of control over much of our business. The advanced materials business, we provide excellent service. We've provided some excellent technology. We haven't seen the growth there, but we also can't do much to influence that growth other than push our customer who is often selling to another customer downstream or potentially selling to a distributor who is selling to another customer. And that market as well as the ingredients market has a long lead time. Hard to control that. I think on our side, the -- it's much easier for us to determine where we're going to be with Solesence based on the constant feedback, literally daily from a lot of these customers we're getting. So rolling out of 2018, rolling into -- when we made some decisions that we were going to expand our capacity as quickly as we could based on an understanding that we felt this was a more permanent set of demand, we all recognized the risk that this is a large single customer. We're the kind of the company that when you have 60% to 70% customer, you have an outsized -- they have an outsized impact on you and we have -- there's a certain degree of a lack of transparency that you have just because of the nature of the markets, coupled with the fact that everybody is switching to just-in-time-type inventory. So when you're supporting a consumer product, it's a little different. You've got to launch, you've got somebody who needs to know darn well when that material is going to be in their warehouse, because they're distributing it, selling it directly. We knew there was a risk that this could happen. We were all surprised at the magnitude of the downturn. And we all are looking at it as a temporary thing and feeling that it will come back.

The $1 million number you threw out there, is that for incremental working capital requirements, or is that also sufficient to roll the existing loans?

That would be incremental, and I literally threw that out there. It may not be that, it could be more, and it really depends on how the rest of the year winds out and what we're -- what our outlook is going into 2020 because typically, your launches -- you start the activity the quarter before, Q1 is a fairly vibrant quarter in the business, so it can be Q3. It just depends on timing where it is. And then you've -- on top of that, the ingredients business has a season and much of it is North American-centric. And until both of our businesses -- and it's looking like we're going to get some business for Solesence on the other side of the world, but until both of our businesses are a little more distributed geographically, we are also subject to the cyclicality in the ingredients business, which usually is somewhere in Q3. They refer to that as filling season, and you start finding out what next year is going to be. So there's a lot of -- a lot happens between, call it, August and early October in both these businesses.

[Operator Instructions] Our next question comes from the line of Ronald Richards.

I got your message. Thank you.

Okay. I guess, that doesn't change any of your substance of late, does it?

No. Just for the rest of group, Ron had mentioned there's a note referring to the outstanding shares on the balance sheet for 2017 that actually has a share number from 2016 on it. And I am happy that we have investors that are looking at all these things. We -- that was a typo. It shouldn't have been there. It won't be in the upcoming 10-K. And it was correct in the prior 10-K, in the 3 -- the last 3 quarters. So it's just a -- that was a mess, but it's an informational disclosure anyway. But I do appreciate the fact that you're looking at it and I was happy to get the feedback.

Okay. Jess, just I am looking at the these liabilities and stockholders' equities figures and I -- you're using 3 different terms over the course of the last year that I'm wondering about. Line of credit related party, line of credit bank and short-term debt, how did it all come about that these -- that the line of bank -- credit from the bank disappeared and the related party came in. Does that any -- does that involve any concern from the bank about the company's financial status?

No. Let me explain. And part of this is, again, part of the GAAP and SEC regulation. So the line of credit bank, that's the loan that we have had for a number of years with Liberty Bell Bank. That's a -- it's a short-term loan as in days that we take out towards the end of a quarter, if we need it, and move it back in. So that's -- that used to be our only credit. So the reason it changed partly is we had to classify the new balances differently. The line of credit related party is the Beachcorp $2 million facility that's driven by accounts receivable as a borrowing base. And the reason that -- it has to say related party is because we have a -- our largest shareholder is involved with the entity that granted that loan. And so that's something we have to disclose. Similar to the long-term loan, that was a fixed term loan from the same long-term -- from the same related parties, so we had to break that out. I realize it's confusing. But it's essentially -- another way to look at it is the line of credit related party and the long-term loan related party are funds we're using to operate with the long-term loan being more capital expenditure focused. You've also got long-term debt related through our capital lease obligations, which are slowly starting to wind down. But I see your confusion and it really has to do with the nature of the new financing we just have.

Does the line of credit with the bank still exist?

Yes. We just didn't...

But it's an undrawn.

We didn't need to use it and it costs money to exercise it. It's very efficient. All of these loans are very capital efficient, surely more efficient than a capital lease. And this one, in particular, we take it when we need it. Interest is -- I don't remember off the top of my head, it's prime plus 1%, but it's only for the amount of days you use it, which is typically 8 or 10 days in addition to a usage fee and there was no need to pull that.

Okay. That's encouraging. Are you rolling out a secondary offering?

I'm not rolling out anything at this point. I would say that anything that would require shareholder approval takes a while. Generally, I would prefer not to delude anybody, but there are realities to consider. And I think as we get further into the year and we see how not just the Solesence business unfolds, but how the rest of the business balances out, I'll have a better idea of that. This discussion relative to the opinion is a relatively fresh one for me. I hadn't expected it. And we are just dealing with it within the last 5 days -- 4 days, 5 days.

Okay. Is there any particular reason the CFO is not present today?

He's got some family business to attend to. He's out this week. He'll be back, and I am just holding the floor without him.

Okay. Well, good luck. It sounds potentially promising.

It is promising. It's -- we've got a business here in Solesence that is really looking good. And I think as it expands and the investors, shareholders can see the differentiation between the 2 parts of the business, I think there'll be a recognition that we really have something here that's going to be a growth engine going into the future.

That's what I like to hear.

Yes, me too.

And I am not showing any further questions at this time. I would now like to turn the call back Mr. Jess Jankowski for closing remarks.

Thanks, Mark. Thanks, again, to all of you who have taken the time to listen and to support Nanophase and Solesence. These are exciting times for all of us at your company. These are also times that will require hard work, better execution and aggressive growth to become the exciting company we all envision. I expect 2019 to be an excellent year for Solesence, and I am looking forward to the opportunity to discuss the business with you again soon. Hope everybody has a great opening day, and go White Sox. Thank you.

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