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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: JUNE 30, 1998
Commission File Number: 0-22333
NANOPHASE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-687863
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
453 COMMERCE STREET, BURR RIDGE, ILLINOIS 60521
(Address of principal executive offices, and zip code)
Registrant's telephone number, including area code: (630) 323-1200
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of August 13, 1998, there were outstanding 12,555,907 shares of
common stock, par value $.01, of the registrant.
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NANOPHASE TECHNOLOGIES CORPORATION
QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION ................................................... 3
Item 1. Financial Statements .................................................... 3
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 .... 3
Statements of Operations (unaudited) for the three months ended June
30, 1998 and 1997 and the six months ended June 30, 1998 and 1997 .... 4
Statements of Cash Flows (unaudited) for the six months ended
June 30, 1998 and 1997 ............................................... 5
Notes to Financial Statements ........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk .............. 11
PART II - OTHER INFORMATION ............................................... ..... 12
Item 1. Legal Proceedings ................................................ ...... 12
Item 2. Changes in Securities and Use of Proceeds ............................... 12
Item 4. Submission of Matters to a Vote of Security Holders ..................... 12
Item 6. Exhibits and Reports on Form 8-K ........................................ 13
SIGNATURES ....................................................................... 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NANOPHASE TECHNOLOGIES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 570,209 $ 3,988,368
Investments ................................................................ 28,630,202 26,884,852
Trade accounts receivable, less allowance for doubtful accounts
of $85,000 in 1998 and $19,276 in 1997..................................... 555,380 1,641,489
Inventories ................................................................ 1,115,005 957,303
Prepaid expenses and other current assets .................................. 121,462 112,138
----------- -----------
Total current assets ...................................................... 30,992,258 33,584,150
Equipment and leasehold improvements, net .................................... 2,482,858 2,399,893
Other assets, net ............................................................ 188,611 212,526
----------- -----------
$33,663,727 $36,196,569
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................... $ 403,277 $ 930,397
Accrued expenses ........................................................... 1,016,733 614,838
----------- -----------
Total current liabilities ................................................. 1,420,010 1,545,235
CONTINGENT LIABILITIES ....................................................... -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 24,088 shares authorized and
no shares issued and outstanding............................................ -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
12,393,039 shares issued and outstanding at June 30, 1998 and
12,277,467 shares issued and outstanding at December 31, 1997 .............. 123,930 122,775
Additional paid-in capital ................................................... 48,351,272 48,273,230
Accumulated deficit .......................................................... (16,231,485) (13,744,671)
----------- -----------
Total stockholders' equity ................................................. 32,243,717 34,651,334
----------- -----------
$33,663,727 $36,196,569
=========== ===========
</TABLE>
See Notes to Financial Statements.
3
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NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Product revenue.......... $ 141,494 $ 228,623 $ 778,228 $ 423,759
Other revenue............ 76,684 374,380 143,484 608,708
----------- ----------- ----------- ------------
Total revenue........... $ 218,178 $ 603,003 $ 921,712 $ 1,032,467
OPERATING EXPENSE:
Cost of revenue.......... $ 687,995 $ 1,059,204 $ 1,656,707 $ 2,162,081
Research and development
expense.................. 601,808 215,334 791,022 376,532
Selling, general and
administrative expense... 909,364 765,995 1,592,663 1,191,492
----------- ----------- ----------- ------------
Total operating expense.. 2,199,167 2,040,533 4,040,392 3,730,105
----------- ----------- ----------- ------------
Loss from operations....... (1,980,989) (1,437,530) (3,118,680) (2,697,638)
Interest income............ 381,575 9,830 787,866 31,747
----------- ----------- ----------- ------------
Loss before provision for
income taxes............... (1,599,414) (1,427,700) (2,330,814) (2,665,891)
Provision for income taxes. -- -- (156,000) --
----------- ----------- ----------- ------------
Net loss................... $(1,599,414) $(1,427,700) $(2,486,814) (2,665,891)
=========== =========== =========== ============
Net loss per share......... $ (0.13) $ (18.40) $ (0.20) $ (34.36)
=========== =========== =========== ============
Weighted average number of
common shares outstanding.. 12,310,154 77,586 12,293,900 77,586
=========== =========== =========== ============
Pro forma net loss
per share.................. $ n/a $ (0.19) $ n/a $ (0.36)
=========== =========== =========== ============
Pro forma weighted average
number of common shares
outstanding................ n/a 7,490,238 n/a 7,488,100
=========== =========== =========== ============
</TABLE>
See Notes to Financial Statements.
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NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss................................................ $ (2,486,814) $(2,665,891)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization........................ 238,849 200,469
Changes in assets and liabilities related to
operations:
Trade accounts receivable............................ 1,086,109 (490,940)
Inventories.......................................... (157,702) 24,931
Prepaid expense and other assets..................... 13,010 38,535
Accounts payable..................................... (527,120) 562,205
Accrued liabilities.................................. 401,895 423,392
------------ -----------
Net cash used in operating activities................... (1,431,773) (1,907,299)
INVESTING ACTIVITIES:
Acquisition of equipment and leasehold improvements..... (320,233) (173,850)
Purchases of held-to-maturity investments............... (112,743,273) (3,965,214)
Maturities of held-to-maturity investments.............. 110,997,923 5,963,002
------------ -----------
Net cash (used in) provided by investing activities..... (2,065,583) 1,823,938
FINANCING ACTIVITIES:
Proceeds from issuance of stock, net of offering costs.. -- 1,956,287
Proceeds from exercise of stock options................. 79,197 --
------------ -----------
Net cash provided by financing activities............... 79,197 1,956,287
(Decrease) increase in cash and cash equivalents........ (3,418,159) 1,872,926
Cash and cash equivalents at beginning of period........ 3,988,368 617,204
------------ -----------
Cash and cash equivalents at end of period.............. $ 570,209 $ 2,490,130
============ ===========
</TABLE>
See Notes to Financial Statements.
5
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NANOPHASE TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Nanophase
Technologies Corporation (the "Company") reflect all adjustments (consisting of
normal recurring adjustments) which, in the opinion of management, are necessary
for a fair presentation of the financial position and operating results of the
Company for the interim periods presented. Operating results for the three and
six month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998.
These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1997, included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, as filed with the Securities and Exchange
Commission.
(2) DESCRIPTION OF BUSINESS
The Company was incorporated on November 30, 1989, for the purpose of
developing nanocrystalline materials for commercial production and sale in
domestic and international markets. The Company was in its development stage for
the period from inception through December 31, 1996. The Company began
full-scale production in early 1997 at which time it no longer was a development
stage company. The Company issued shares of its common stock ("Common Stock") in
its initial public offering consummated on December 2, 1997 (the "Offering").
In the course of its corporate development, the Company has experienced
net losses and negative cash flows from operations. Historically, the Company
has funded its operations primarily through the issuance of equity securities.
Revenue from foreign customers approximated $169,500 and $255,500 for the
six months ended June 30, 1998 and 1997, respectively.
(3) INVESTMENTS
Investments consist of U.S. Treasury bills, government bonds and
commercial paper with an estimated fair value of $28,630,000 at June 30, 1998
and $26,885,000 at December 31, 1997. All investments have been classified as
held-to-maturity and mature within a twelve month period.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
RAW MATERIALS.....................................$ 384,081 $ 379,505
FINISHED GOODS.................................... 730,924 577,798
----------- -------------
$ 1,115,005 $ 957,303
=========== =============
</TABLE>
6
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(5) RESEARCH AND DEVELOPMENT EXPENSE
Expenditures for research and development activities are charged to
operations as incurred by the Company. In March 1998, the Company entered into
certain research and development arrangements with two separate entities to
further develop end use products utilizing nanocrystalline materials. Both
arrangements are short-term in nature. Expenditures related to these
arrangements in the amount of $425,000 have been incurred by the Company during
the three and six months ended June 30, 1998 and are included as a charge to
research and development expense in the Statements of Operations.
(6) STOCK OPTIONS
During the three months ended June 30, 1998, options to purchase 115,572
shares of Common Stock were exercised for $79,197.
(7) CONTINGENT LIABILITIES
The Company, certain of its officers and directors, and the underwriters
of the Offering have received notice that several complaints have been filed
against them in federal court. The complaints allege that the Company, the named
officers and directors, and the named underwriters are liable under federal
securities laws for making material misstatements of fact or omitting to state
material facts in the Company's Registration Statement and Prospectus relating
to the Offering. The complaints also allege that the actions should be
maintained as plaintiff class actions on behalf of certain persons who purchased
the Company's Common Stock from November 26, 1997 through January 8, 1998. The
complaints are each seeking unquantified damages as provided for under the
federal securities laws, pre- and post-judgment interest, attorneys' fees,
expert witness fees, other costs and expenses and such other and further relief
as the Court may find proper. In addition, two of the complaints seek rescission
and/or rescissory damages relating to purchases of the Common Stock, as provided
for under federal securities laws. The Company has retained counsel for itself
and the named officers and directors, and intends to defend the complaints
vigorously. Although the Company believes the allegations are without merit, it
is unable to predict at this time the outcome of these complaints or whether
their resolution could have a material adverse effect on the Company's results
of operations, cash flows or financial condition.
(8) SUBSEQUENT EVENTS
In July 1998, options to purchase 8,731 shares of Common Stock were
exercised for $10,485. In addition, a stockholder which is controlled by a
director of the Company, exercised warrants representing 232,491 shares of
Common Stock in a cashless exchange of the warrants for 162,868 shares of Common
Stock.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
From its inception in November 1989 through December 31, 1996, Nanophase
Technologies Corporation (the "Company") was in the development stage. During
that period, the Company primarily focused on the development of its
manufacturing processes in order to transition from laboratory-scale to
commercial-scale production. As a result, the Company developed an operating
capacity to produce significant quantities of its nanocrystalline materials for
commercial sale. The Company was also engaged in the development of commercial
applications and formulations and the recruiting of marketing, technical and
administrative personnel. Since January 1, 1997, the Company has been engaged in
commercial production and sales of its nanocrystalline materials, and the
Company no longer considers itself in the development stage. All of the
Company's revenue since January 1, 1997 has been generated through commercial
sources. From inception through June 30, 1998, the Company was primarily
capitalized through the private offering of approximately $19,558,069 of equity
securities and its initial public offering of $28,837,936 of the Company's
common stock ("Common Stock"), each net of issuance costs. The Company has
incurred cumulative losses of $16,231,485 from inception to June 30, 1998.
RESULTS OF OPERATIONS
Revenue is recorded when the Company ships products, when specific
milestones are met regarding development arrangements or when the Company
licenses its technology and transfers proprietary information. Total revenue
decreased to $218,178 and $921,712 for the three and six months, respectively,
ended June 30, 1998, compared to $603,003 and $1,032,467 for the same periods in
1997. The decrease in total revenue for the three month period was primarily
attributed to a reduction in product shipments and development revenue, while
the decrease in total revenue for the six month period was primarily attributed
to a reduction in development revenue, partially offset by increased product
shipments. Revenue from product shipments decreased to $141,494 and increased to
$778,228 for the three and six months, respectively, ended June 30, 1998,
compared to $228,623 and $423,759 for the same periods in 1997. Other revenue
decreased to $76,684 and $143,484 for the three and six months, respectively,
ended June 30, 1998, compared to $374,380 and $608,708 for the same periods in
1997. The majority of the revenue generated during the three and six months
ended June 30, 1998 was from customers in the electronics and structural
ceramics and composites markets.
Cost of revenue generally includes costs associated with commercial
production, customer development arrangements and licensing fees. Cost of
revenue decreased to $687,995 and $1,656,707 for the three and six months,
respectively, ended June 30, 1998, compared to $1,059,204 and $2,162,081 for the
same periods in 1997. These decreases in cost of revenue were generally
attributed to increased efficiencies in the manufacture of the Company's
products and the reduced cost of development activities, somewhat offset by
inefficiencies in the Company's coating operations and increased net shaping
costs. Cost of revenue as a percentage of total revenue increased for the three
months ended June 30, 1998, compared to the same period in 1997, due primarily
to the decrease in total revenue and its relation to fixed costs. Cost of
revenue as a percentage of total revenue decreased for the six months ended June
30, 1998, compared to the same period in 1997, because of the increased
efficiencies in the Company's manufacturing processes.
Research and development expense primarily consists of costs associated
with the Company's development or acquisition of new product applications and
coating formulations and the cost of enhancing the Company's manufacturing
processes. Research and development expense increased to $601,808 and $791,022
for the three and six months, respectively, ended June 30, 1998, compared to
8
<PAGE> 9
$215,334 and $376,532 for the same periods in 1997. These increases in research
and development expense were primarily attributed to $425,000 of costs related
to arrangements with outside parties to further develop end use products
utilizing nanocrystalline materials, slightly offset by reductions in internal
costs regarding the development of new formulations and product applications.
The Company expects to further increase its research and development expense for
the remainder of 1998 in connection with its plans to continue to enhance and
expand its product lines and manufacturing processes.
Selling, general and administrative expense increased to $909,364 and
$1,592,663 for the three and six months, respectively, ended June 30, 1998,
compared to $765,995 and $1,191,492 for the same periods in 1997. The selling,
general and administrative expense for the three and six months ended June 30,
1997 included a one-time cost of $375,103 related to a public offering withdrawn
in May 1997. Excluding such one-time charge, selling, general and administrative
expense increased by $518,472 and $776,274 in the three and six months,
respectively, ended June 30, 1998, compared to the same periods in 1997. These
increases were primarily attributed to increased costs associated with being a
public company, costs associated with registering shares of Common Stock
underlying options, costs related to ongoing investor relation programs,
additional legal expenses, salaries of additional sales personnel and increased
recruiting costs. The Company expects to further increase its selling, general
and administrative expense during the remainder of 1998 in connection with its
plans to further expand its sales force and administrative staff.
Interest income increased to $381,575 and $787,866 for the three and six
months, respectively, ended June 30, 1998, compared to $9,830 and $31,747 for
the same periods in 1997. These increases were primarily due to the investment
of net proceeds from the Company's sale of equity securities pending use of such
proceeds for operating activities and expansion of its manufacturing facility.
Income tax expense was $0 and $156,000 for the three and six months,
respectively, ended June 30, 1998, compared to $0 for the same periods in 1997.
The 1998 expense was due to the foreign taxes withheld from license fees
received from C.I. Kasei Co., Ltd. The payment of such taxes creates a foreign
tax credit which may be available to offset federal income taxes when the
Company generates taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments amounted to
$29,200,411 at June 30, 1998, compared to $30,873,220 at December 31, 1997. The
net cash used in the Company's operating activities was $1,431,773 for the six
months ended June 30, 1998, compared to $1,907,299 for the same period in 1997.
The net cash used in operating activities for the six months ended June 30, 1998
was primarily for the further development of product applications, the funding
of research and development activities, the funding of inventory levels and the
payment of accounts payable, which was offset by the collection of accounts
receivable and an increase in accrued liabilities. Net cash used in investing
activities, including capital expenditures and purchases and sales of securities
in which cash is invested pending its use for operating activities and expansion
of the Company's manufacturing facility, amounted to $2,065,583 for the six
months ended June 30, 1998, compared to net cash provided of $1,823,938 for the
same period in 1997. Capital expenditures, primarily related to the further
expansion of the Company's existing manufacturing facility and the purchase of
operating equipment, amounted to $320,233 for the six months ended June 30,
1998, compared to $173,850 for the same period in 1997. Net cash provided by
financing activities, which related to the exercise of options for 115,572
shares of Common Stock, amounted to $79,197 for the six months ended June 30,
1998, compared to $1,956,287, which related to the net proceeds from the
issuance of preferred stock, for the same period in 1997.
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The Company believes that cash from operations and cash on hand, together
with the net proceeds of its initial public offering of Common Stock consummated
in December 1997, will be adequate to fund the Company's current operating
plans. The Company's actual future capital requirements will depend, however, on
many factors, including customer acceptance of the Company's current and
potential materials and product applications, continued progress in the
Company's research and development activities and product testing programs, the
magnitude of these activities and programs, and the costs necessary to increase
and expand the Company's manufacturing capabilities and to market and sell the
Company's materials and product applications. Depending on future requirements,
the Company may seek additional funding through public or private financing,
collaborative relationships, government contracts or additional licensing
agreements. There can be no assurance that such additional financing will be
available on acceptable terms or at all, and any such additional financing could
be dilutive to the Company's stockholders.
At June 30, 1998, the Company had a net operating loss carryforward of
approximately $15.6 million for income tax purposes. Because the Company may
have experienced "ownership changes" within the meaning of the U.S. Internal
Revenue Code (the "Internal Revenue Code") in connection with its various prior
equity offerings, future utilization of this carryforward may be subject to
certain limitations as defined by the Internal Revenue Code. If not utilized,
the carryforward expires at various dates between 2005 and 2012. As a result of
the annual limitation, a portion of this carryforward may expire before
ultimately becoming available to reduce income tax liabilities. At June 30,
1998, the Company also had a foreign tax credit carryforward of $156,000, which
could be used as an offsetting tax credit to reduce U.S. income taxes. The
foreign tax credit will expire in 2012 if not utilized before that date.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company processes its transactions and applications utilizing personal
computers. Based on a recent assessment, the Company determined that no
significant modifications or replacements of its software or systems will be
required to function properly with respect to dates in the year 2000 and
thereafter. As of January 1, 1998, the Company only acquires software and
invests in systems which are compliant with the year 2000 conventions.
To date, the Company does not have any direct interface between its
systems and those of any significant supplier or customer. Although the Company
recognizes that it is vulnerable to third parties that fail to remediate their
own Year 2000 Issues, it does not believe that such failure would significantly
affect its operations. However, there can be no guarantee that the systems of
other companies on which the Company relies will be timely converted or that
their failure to do so would not have an adverse effect on the Company's
operations. The Company has determined it has no exposure to contingencies
related to the Year 2000 Issue for the products it has previously sold.
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LEGAL PROCEEDINGS
As disclosed in Note 7 to the Financial Statements and under Item 1. Legal
Proceedings in Part II, five complaints have been filed against the Company,
certain of its officers and directors, and the underwriters of the Company's
initial public offering of Common Stock alleging violations of federal
securities laws. The complaints are each seeking unquantified damages as
provided for under the federal securities laws, pre- and post-judgment interest,
attorneys' fees, expert witness fees, other costs and expenses and such other
and further relief as the Court may find proper. In addition, two of the
complaints seek rescission and/or rescissory damages relating to purchases of
the Common Stock, as provided for under federal securities laws. The Company has
retained counsel for itself and the named officers and directors, and intends to
defend the complaints vigorously. Although the Company believes the allegations
are without merit, it is unable to predict at this time the outcome of these
complaints or whether their resolution could have a material adverse effect on
the Company's results of operations, cash flows or financial condition.
SAFE HARBOR PROVISION
Because the Company wants to provide investors with more meaningful and
useful information, this Quarterly Report on Form 10-Q (the "Form 10-Q")
contains, and incorporates by reference, certain "forward-looking statements"
(as such term is defined in Section 21E of the Securities Exchange Act of 1934,
as amended), that reflect the Company's current expectations regarding the
future results of operations, performance and achievements of the Company. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company has tried,
wherever possible, to identify these forward-looking statements by using words
such as "anticipates," "believes," "estimates," "expects," "plans," "intends"
and similar expressions. These statements reflect the Company's current beliefs
and are based on information currently available to it. Accordingly, these
statements are subject to certain risks, uncertainties and contingencies, which
could cause the Company's actual results, performance or achievements to differ
materially from those expressed in, or implied by, such statements. These risks,
uncertainties and contingencies include, without limitation, demand for, and
acceptance of, the Company's nanocrystalline materials and product applications;
changes in development and distribution relationships; the impact of competitive
products and technologies; and the factors set forth under "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December
31, 1997, as filed with the Securities and Exchange Commission. The Company
undertakes no obligation to update or revise any such forward-looking statements
that may be made to reflect events or circumstances after the date of this Form
10-Q or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Beginning on June 4, 1998 and up until the date hereof, five separate
complaints have been filed in the United States District Court for the Northern
District of Illinois, Eastern Division, each of which alleges that the Company,
certain of its officers and directors and the underwriters of the Company's
initial public offering of Common Stock (the "Offering") are liable under
federal securities laws for making material misstatements of fact or omitting to
state material facts necessary to make other statements of fact not misleading
in the Registration Statement and Prospectus relating to the Offering. The
complaints were filed by Laurence D. Paskowitz, Barry Pinkowitz, Jeffrey F.
Abraham, Marvin and Linda Jacobs and Christopher Germano on June 4, 1998, June
8, 1998, June 10, 1998, July 8, 1998 and July 15, 1998, respectively. Each of
the five complaints alleges that the actions should be maintained as plaintiff
class actions on behalf of all persons who purchased the Company's Common Stock
from November 26, 1997 through January 8, 1998, excluding the defendants,
members of their immediate families, any entity in which a defendant has a
controlling interest and certain others related to or affiliated with the
foregoing. The complaints filed by Mr. Paskowitz and Mr. Germano also allege
that the actions described therein should be maintained as defendant class
actions against all of the underwriters who were involved in the Offering. The
complaints each seek unquantified damages as provided for under the federal
securities laws, pre- and post-judgment interest, attorneys' fees, expert
witness fees, other costs and expenses and such other and further relief as the
Court may find proper. In addition, the complaints filed by Mr. and Mrs. Jacobs
and Mr. Germano seek rescission and/or rescissory damages relating to purchases
of the Common Stock, as provided for under federal securities laws. The Company
has retained counsel for itself and the named officers and directors and intends
to defend the complaints vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 26, 1997 (the "Effective Date") the Company's Registration
Statement on Form S-1 (File No. 333-36937) relating to the Offering was declared
effective by the Securities and Exchange Commission. Since the Effective Date,
of its $28,837,936 of net proceeds from the Offering, the Company has used
$320,233 for capital expenditures primarily related to the further expansion of
the Company's existing manufacturing facility and the purchase of operating
equipment. The remainder of the net proceeds has been invested by the Company,
pending its use, in short-term, investment grade, interest-bearing obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a) The 1998 Annual Meeting of Stockholders of the Company was held on June
10, 1998.
b) The stockholders voted to re-elect two Class I directors to the
Company's Board of Directors. Results of the voting were as follows:
<TABLE>
<CAPTION>
Directors For Authority Withheld Abstentions Broker Non-Votes
--------- --- ------------------ ----------- ----------------
<S> <C> <C> <C> <C>
Robert W. Cross 10,088,181 38,083 __ __
Robert W. Shaw, Jr., Ph.D. 10,087,681 38,583 __ __
</TABLE>
Leonard A. Batterson, Steven Lazarus, Donald S. Perkins and Richard W.
Siegel, Ph.D. continued their terms of office as directors of the Company
after the 1998 Annual Meeting of Stockholders.
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<PAGE> 13
c) The stockholders also voted to ratify the appointment by the
Company's Board of Directors of Ernst & Young LLP as the independent
auditors of the Company's financial statements for the year ended
December 31, 1998. Results of the voting were as follows:
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
10,067,884 20,193 38,187 __
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS.
Exhibit 11 - Statement Regarding Computation of Loss per Share
Exhibit 27 - Financial Data Schedule
B. REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form 8-K during the
second quarter of 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NANOPHASE TECHNOLOGIES CORPORATION
Date: August 14, 1998 By: /s/ ROBERT W. CROSS
------------------------
Robert W. Cross
President, Chief Executive Officer (principal
executive officer) and a Director
Date: August 14, 1998 By: /s/ DENNIS J. NOWAK
------------------------
Dennis J. Nowak
Vice President-Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(principal financial and accounting officer)
14
<PAGE> 15
EXHIBIT INDEX
-------------
Exhibit
Number Exhibit Name
- ------- ------------
11 Statement Regarding Computation of Loss per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
HISTORICAL:
Weighted average common shares outstanding 12,310,154 77,586 12,293,900 77,586
============ ============ ============ ============
Net loss $ (1,599,414) $ (1,427,700) $ (2,486,814) $ (2,665,891)
============ ============ ============ ============
Net loss per common share $ (0.13) $ (18.40) $ (0.20) $ (34.36)
============ ============ ============ ============
PRO FORMA:
Weighted average common shares outstanding n/a 77,586 n/a 77,586
Weighted average preferred shares outstanding n/a 7,412,652 n/a 7,410,514
------------ ------------ ------------ ------------
Total n/a 7,490,238 n/a 7,488,100
============ ============ ============ ============
Net loss n/a $ (1,427,700) n/a $ (2,665,891)
============ ============ ============ ============
Pro forma net loss per common share n/a $ (0.19) n/a $ (0.36)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 570,209
<SECURITIES> 28,630,202
<RECEIVABLES> 555,380
<ALLOWANCES> 85,000
<INVENTORY> 1,115,005
<CURRENT-ASSETS> 30,992,258
<PP&E> 3,600,331
<DEPRECIATION> 1,117,473
<TOTAL-ASSETS> 33,663,727
<CURRENT-LIABILITIES> 1,420,010
<BONDS> 0
0
0
<COMMON> 48,475,202
<OTHER-SE> (16,231,485)
<TOTAL-LIABILITY-AND-EQUITY> 33,663,727
<SALES> 778,228
<TOTAL-REVENUES> 921,712
<CGS> 1,656,707
<TOTAL-COSTS> 4,040,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,330,814)
<INCOME-TAX> (156,000)
<INCOME-CONTINUING> (2,486,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,486,814)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
