<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
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: MARCH 31, 2000
Commission File Number: 0-22333
NANOPHASE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3687863
(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
--------------------
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 May 10, 2000, there were outstanding 13,449,293 shares of Common
Stock, par value $.01, of the registrant.
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NANOPHASE TECHNOLOGIES CORPORATION
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION.................................................................................. 3
Item 1. Financial Statements............................................................................. 3
Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999............................ 3
Statements of Operations (unaudited) for the three months ended March 31, 2000 and 1999.......... 4
Statements of Cash Flows (unaudited) for the three months ended March 31, 2000 and 1999.......... 5
Notes to Financial Statements (unaudited)........................................................ 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....................................... 12
PART II - OTHER INFORMATION..................................................................................... 13
Item 1. Legal Proceedings................................................................................ 13
Item 2. Changes in Securities and Use of Proceeds........................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................................................. 14
SIGNATURES...................................................................................................... 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NANOPHASE TECHNOLOGIES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
-------------- ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 809,584 $ 624,509
Investments 19,994,627 21,216,168
Trade accounts receivable, less allowance for doubtful accounts
of $118,000 at March 31, 2000 and $120,000 at December 31, 1999 712,449 401,826
Other receivable, net 489,011 247,841
Inventories, net 987,034 766,778
Prepaid expenses and other current assets 101,356 90,358
-------------- --------------
Total current assets 23,094,061 23,347,480
Equipment and leasehold improvements, net 2,029,963 2,152,413
Other assets, net 181,194 177,646
-------------- --------------
$ 25,305,218 $ 25,677,539
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 652,472 $ 615,818
Accrued expenses 953,499 900,398
-------------- --------------
Total current liabilities 1,605,971 1,516,216
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; 13,449,293
shares issued and outstanding at March 31, 2000 and 12,764,058
shares issued and outstanding at December 31, 1999 134,493 127,641
Additional paid-in capital 49,494,931 48,529,300
Accumulated deficit (25,930,177) (24,495,618)
-------------- --------------
Total stockholders' equity 23,699,247 24,161,323
-------------- --------------
$ 25,305,218 $ 25,677,539
============== ==============
</TABLE>
See Notes to Financial Statements.
3
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NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
--------------------------
March 31,
2000 1999
------------ ------------
Revenue:
Product revenue $ 487,171 $ 266,248
Other revenue 131,750 58,750
------------ ------------
Total revenue 618,921 324,998
Operating expense:
Cost of revenue 818,753 781,089
Research and development expense 589,662 390,414
Selling, general and administrative expense 928,290 1,018,446
------------ ------------
Total operating expense 2,336,705 2,189,949
------------ ------------
Loss from operations (1,717,784) (1,864,951)
Interest income 283,225 289,049
------------ ------------
Loss before provision for income taxes (1,434,559) (1,575,902)
Provision for income taxes - -
------------ ------------
Net loss $(1,434,559) $(1,575,902)
============ ============
Net loss per share $ (0.11) $ (0.13)
============ ============
Weighted average number of common
shares outstanding 13,008,964 12,593,718
============ ============
See Notes to Financial Statements.
4
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NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
2000 1999
----------- -----------
OPERATING ACTIVITIES:
Net loss $ (1,434,559) $ (1,575,902)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 179,754 169,315
Allowance for excess inventory
quantities (48,243) 50,891
Changes in assets and liabilities
related to operations:
Trade accounts receivable (310,623) 133,001
Other receivable (241,170) (304,032)
Inventories (172,013) 22,895
Prepaid expenses and other
assets (17,877) (13,912)
Accounts payable 36,654 405,799
Accrued liabilities 53,101 409,258
------------ ------------
Net cash used in operating activities (1,954,976) (702,687)
INVESTING ACTIVITIES:
Acquisition of equipment and
leasehold improvements (53,972) (131,782)
Purchases of held-to-maturity
investments (35,378,736) (40,615,640)
Maturities of held-to-maturity
investments 36,600,277 41,827,789
------------ ------------
Net cash provided by investing activities 1,167,569 1,080,367
FINANCING ACTIVITIES:
Proceeds from options exercises 972,482 29,547
------------ ------------
Net cash provided by financing
activities 972,482 29,547
------------ ------------
Increase in cash and cash
equivalents 185,075 407,227
Cash and cash equivalents at
beginning of period 624,509 363,394
------------ ------------
Cash and cash equivalents at end
of period $ 809,584 $ 770,621
============ ============
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
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000.
These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1999, included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, as filed with the Securities and Exchange
Commission.
(2) DESCRIPTION OF BUSINESS
Nanophase Technologies Corporation (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 issued Common Stock in its initial public offering consummated on
December 2, 1997.
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 international sources approximated $137,400 and $139,100
for the three months ended March 31, 2000 and 1999, respectively.
(3) INVESTMENTS
Investments are classified by the Company at the time of purchase for
appropriate designation and such designations are reevaluated as of each balance
sheet date. Investments are classified as held-to maturity when the Company has
the positive intent and ability to hold the securities to maturity. Held-to
maturity securities are stated at amortized costs and are adjusted to maturity
for the amortization of premiums and accretion of discounts. Such adjustments
for amortization and accretion are included in interest income.
(4) INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
Raw materials...................................... $ 256,384 $ 257,485
Finished goods..................................... 942,621 769,507
---------- ---------
1,199,005 1,026,992
Allowance for excess inventory quantities.......... (211,971) (260,214)
---------- ---------
$ 987,034 $ 766,778
========== =========
6
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(5) STOCK OPTIONS AND WARRANTS
During the three months ended March 31, 2000, 312,656 shares of Common
Stock were issued pursuant to option exercises. In the same three-month period,
372,579 shares of Common Stock were issued pursuant to warrant exercises.
(6) CONTINGENT LIABILITIES
Five separate complaints were filed in the United States District Court
for the Northern District of Illinois, Eastern Division, each of which alleged
that the Company, certain of its officers and directors, and the underwriters of
the Offering are liable under the federal securities laws for making supposedly
negligent or reckless material misstatements of fact and omitting to state
material facts necessary to make other statements of fact not misleading in the
Registration Statement and Prospectus relating to the Offering. Those cases were
consolidated and a consolidated complaint was filed in October 1998. The
consolidated complaint alleges that the action should be maintained as (i) a
plaintiff class action on behalf of certain persons who purchased the Common
Stock from November 26, 1997 through January 8, 1998, excluding the defendants,
members of their immediate families, and any entity in which a defendant has a
controlling interest, and (ii) a defendant class action against the underwriters
who participated in the Offering. The consolidated complaint seeks unquantified
damages under the federal securities laws, pre- and post-judgment interest,
attorneys' fees, and expert witness fees. In addition, the consolidated
complaint seeks rescission and/or rescissory damages relating to purchases of
the Common Stock under federal securities laws. In October 1999, the Court
granted in part and denied in part motions to dismiss the consolidated complaint
that previously had been filed by each defendant. In its ruling, the Court in
part found that plaintiffs who did not purchase their Common Stock during the
Offering could not sue under Section 12(a)(2) of the Securities Act of 1933.
Each defendant's respective answer to the remaining claims in the consolidated
complaint was filed in November 1999 and discovery began thereafter. In August
1998, the Company received a request for indemnification from the underwriters
of the Offering pursuant to the underwriting agreement for the Offering. In
response to such request, the Company has agreed to be responsible for the
underwriters' attorneys' fees with respect to the litigation.
In November 1998, a separate complaint was filed in the Northern
District of Illinois, Eastern Division, alleging that the Company, certain of
its officers and directors, and the underwriters of the Offering are liable
under the federal Securities Act of 1934 for making supposedly fraudulent
material misstatements of fact and omitting to state material facts necessary to
make other statements of fact not misleading in connection with the solicitation
of consents to proceed with the Offering from certain of the Company's preferred
stockholders. The complaint alleges that the action should be maintained as a
plaintiff class action on behalf of those former preferred stockholders whose
shares of preferred stock were converted into Common Stock on or about the date
of the Offering, excluding the defendants, other officers and directors of the
Company, members of the immediate families of all individual defendants, and any
entity in which a defendant has a controlling interest. The complaint seeks
unquantified damages as provided for under the federal securities laws, pre- and
post-judgment interest, attorneys' fees, and expert witness fees. In March 1999,
the preferred stockholders' complaint was reassigned to the judge hearing the
consolidated complaint described above. Thereafter, pretrial proceedings
involving the preferred stockholders' complaint were further consolidated with
that litigation. In October 1999, all defendants filed a joint motion to dismiss
the preferred stockholders' complaint; briefing on that motion was completed in
March 2000. To date, the Court has not ruled on the motion to dismiss the
preferred stockholders' complaint nor has the Court indicated when it
anticipates ruling.
The Company, the defendant directors and the defendant officers each
have retained counsel for both of the above-described suits and intend to defend
against both complaints vigorously. Although the Company believes that the
allegations of the complaints are without merit, it is not feasible for the
Company to predict at this time the outcome of either suit or whether the
resolution of either suit could have a material adverse effect on the Company's
results of operations, cash flows or financial condition.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since January 1, 1997, Nanophase Technologies Corporation (the
"Company") has been engaged in the commercial production and sale of its
nanocrystalline materials. All of the Company's revenue since January 1, 1997
has been generated through commercial sources. From its inception in November
1989 through March 31, 1999, 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 (the
"Common Stock"), each net of issuance costs. The Company has incurred cumulative
losses of $25,930,177 from inception through March 31, 2000.
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
increased to $618,921 for the three months ended March 31, 2000, compared to
$324,998 for the same period in 1999. The increase in total revenue was
primarily attributed to an increase in product revenue. Product revenue
increased to $487,171 for the three months ended March 31, 2000, compared to
$266,248 for the same period in 1999. Other revenue increased to $131,750 for
the three-month period ended March 31, 2000, compared to $58,750 for the same
period in 1999. The majority of the revenue generated during the three months
ended March 31, 2000 was from customers in the healthcare and electronics
markets.
Cost of revenue generally includes costs associated with commercial
production, customer development arrangements and licensing fees. Cost of
revenue increased to $818,753 for the three months ended March 31, 2000,
compared to $781,089 for the same period in 1999. The increase in cost of
revenue was generally attributed to increased product shipments, somewhat offset
by efficiencies in the manufacture of the Company's products. Cost of revenue as
a percentage of total revenue decreased for the three months ended March 31,
2000, compared to the same period in 1999, due primarily to the increase in
total revenue.
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 $589,662 for the three
months ended March 31, 2000, compared to $390,414 for the same period in 1999.
The increase in research and development expense was primarily attributed to
additional salaries for newly hired research personnel and increased costs
related to ongoing development activities. The Company expects to further
increase its research and development expense for the remainder of 2000 in
connection with its plans to continue to enhance and expand its product lines,
technologies and manufacturing processes.
Selling, general and administrative expense decreased to $928,290 for
the three-month period ended March 31, 2000, compared to $1,018,446 for the same
period in 1999. The net decrease was primarily attributed to a reduction in
executive compensation and legal expenses. These decreases were somewhat offset
by salaries of additional sales and administrative personnel, and expenses
relating to advertising and promotion.
8
<PAGE> 9
Interest income decreased to $283,225 for the three-month period ended
March 31, 2000, compared to $289,049 for the same period in 1999. This decrease
was primarily due to a reduction in funds available for investment, somewhat
offset by an increase in investment yields.
There was no income tax expense for the three months ended March 31,
2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments amounted to
$20,804,211 at March 31, 2000, compared to $21,840,677 at December 31, 1999. The
net cash used in the Company's operating activities was $1,954,976 for the three
months ended March 31, 2000, compared to $702,687 for the same period in 1999.
The net cash used in operating activities for the three-month period ended March
31, 2000 was primarily for the further development of product applications, the
funding of research and development activities and sales efforts, and the
funding of trade receivables, other receivables and inventory levels. Net cash
provided by investing activities, including capital expenditures and purchases
of securities in which cash is invested pending its use for operating activities
and expansion of the Company's manufacturing facilities offset by maturities of
such securities, amounted to $1,167,569 for the three months ended March 31,
2000, compared to $1,080,367 of net cash provided by investing activities for
the same period in 1999. Capital expenditures, primarily related to the further
expansion of the Company's existing manufacturing facility and the purchase of
operating equipment, amounted to $53,972 for the three months ended March 31,
2000, compared to $131,782 for the same period in 1999. Net cash provided by
financing activities, which related to the issuance of shares of Common Stock
pursuant to the exercise of options and warrants, amounted to $972,482 for the
three-month period ended March 31, 2000, compared to $29,547 for the same period
in 1999.
The Company believes that cash from operations and cash on hand,
together with the remaining net proceeds from the Company's initial public
offering of Common Stock ("the Offering") and interest income thereon, 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 nanocrystalline
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. Additional financing may not be available on acceptable terms or at
all, and any such additional financing could be dilutive to the Company's
stockholders.
At March 31, 2000, the Company had a net operating loss carryforward of
approximately $24.5 million for income tax purposes. Because the Company may
have experienced "ownership changes" within the meaning of the U.S. 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 2014. As a result of the annual limitation, a
portion of this carryforward may expire before ultimately becoming available to
reduce income tax liabilities. At March 31, 2000, 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 2013
if not utilized before that date.
9
<PAGE> 10
LEGAL PROCEEDINGS
As disclosed in Note 5 to the Financial Statements and under "Part II -
Other Information - Item 1. Legal Proceedings," five separate complaints were
filed in the United States District Court for the Northern District of Illinois,
Eastern Division, each of which alleged that the Company, certain of its
officers and directors, and the underwriters of the Offering are liable under
the federal securities laws for making supposedly negligent or reckless material
misstatements of fact and omitting to state material facts necessary to make
other statements of fact not misleading in the Registration Statement and
Prospectus relating to the Offering. Those cases were consolidated and a
consolidated complaint was filed in October 1998. The consolidated complaint
alleges that the action should be maintained as (i) a plaintiff class action on
behalf of certain persons who purchased the Common Stock from November 26, 1997
through January 8, 1998, excluding the defendants, members of their immediate
families, and any entity in which a defendant has a controlling interest, and
(ii) a defendant class action against the underwriters who participated in the
Offering. The consolidated complaint seeks unquantified damages under the
federal securities laws, pre- and post-judgment interest, attorneys' fees, and
expert witness fees. In addition, the consolidated complaint seeks rescission
and/or rescissory damages relating to purchases of the Common Stock under
federal securities laws. In October 1999, the Court granted in part and denied
in part motions to dismiss the consolidated complaint that previously had been
filed by each defendant. In its ruling, the Court in part found that plaintiffs
who did not purchase their Common Stock during the Offering could not sue under
Section 12(a)(2) of the Securities Act of 1933. Each defendant's respective
answer to the remaining claims in the consolidated complaint was filed in
November 1999 and discovery began thereafter.
In November 1998, a separate complaint was filed in the Northern
District of Illinois, Eastern Division, alleging that the Company, certain of
its officers and directors, and the underwriters of the Offering are liable
under the federal Securities Act of 1934 for making supposedly fraudulent
material misstatements of fact and omitting to state material facts necessary to
make other statements of fact not misleading in connection with the solicitation
of consents to proceed with the Offering from certain of the Company's preferred
stockholders. The complaint alleges that the action should be maintained as a
plaintiff class action on behalf of those former preferred stockholders whose
shares of preferred stock were converted into Common Stock on or about the date
of the Offering, excluding the defendants, other officers and directors of the
Company, members of the immediate families of all individual defendants, and any
entity in which a defendant has a controlling interest. The complaint seeks
unquantified damages as provided for under the federal securities laws, pre- and
post-judgment interest, attorneys' fees, and expert witness fees. In March 1999,
the preferred stockholders' complaint was reassigned to the judge hearing the
consolidated complaint described above. Thereafter, pretrial proceedings
involving the preferred stockholders' complaint were further consolidated with
that litigation. In October 1999, all defendants filed a joint motion to dismiss
the preferred stockholders' complaint; briefing on that motion was completed in
March 2000. To date, the Court has not ruled on the motion to dismiss the
preferred stockholders' complaint nor has the Court indicated when it
anticipates ruling.
The Company, the defendant directors and the defendant officers each
have retained counsel for both of the above-described suits and intend to defend
against both complaints vigorously. Although the Company believes that the
allegations of the complaints are without merit, it is not feasible for the
Company to predict at this time the outcome of either suit or whether the
resolution of either suit 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, the Quarterly Report on Form 10-Q contains certain
"forward-looking statements" (as such term is defined in Section 21E of the
Securities Exchange Act of 1934, as amended). Statements contained in
10
<PAGE> 11
this Quarterly Report on Form 10-Q 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 expectations regarding its future results of
operations, performance, and achievements and are based on information currently
available to the Company. The Company has tried, wherever possible, to identify
these forward-looking statements by using words such as "intends," "believes,"
"estimates," "expects," "plans," and similar expressions. These statements are
subject to certain risks, uncertainties, and factors which could cause the
Company's actual results, performance, and achievements in 2000 and beyond to
differ materially from those expressed in, or implied by, such statements. These
risks, uncertainties, and factors include, without limitation: uncertain demand
for, and acceptance of, the Company's nanocrystalline materials; the Company's
dependence on a limited number of key customers; the Company's limited
manufacturing capacity and experience; the Company's limited marketing
experience; changes in development and distribution relationships; the impact of
competitive products and technologies; the Company's dependence on patents and
protection of proprietary information; the resolution of litigation the Company
is involved in; and other risks 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, 1999,
as filed with the Securities and Exchange Commission. Readers of this Quarterly
Report on Form 10-Q should not place undue reliance on any forward-looking
statements. The Company undertakes no obligation to update or revise these
forward-looking statements to reflect new events or uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk on its investment
portfolio. A 1% fluctuation in interest rate would result in a change in the
portfolio earnings of approximately $200,000 per year.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, five separate complaints were filed in the
United States District Court for the Northern District of Illinois, Eastern
Division, each of which alleged that the Company, certain of its officers and
directors, and the underwriters of the Offering are liable under the federal
securities laws for making supposedly negligent or reckless material
misstatements of fact and omitting to state material facts necessary to make
other statements of fact not misleading in the Registration Statement and
Prospectus relating to the Offering. Those cases were consolidated and a
consolidated complaint was filed in October 1998. The consolidated complaint
alleges that the action should be maintained as (i) a plaintiff class action on
behalf of certain persons who purchased the Common Stock from November 26, 1997
through January 8, 1998, excluding the defendants, members of their immediate
families, and any entity in which a defendant has a controlling interest, and
(ii) a defendant class action against the underwriters who participated in the
Offering. The consolidated complaint seeks unquantified damages under the
federal securities laws, pre- and post-judgment interest, attorneys' fees, and
expert witness fees. In addition, the consolidated complaint seeks rescission
and/or rescissory damages relating to purchases of the Common Stock under
federal securities laws. In October 1999, the Court granted in part and denied
in part motions to dismiss the consolidated complaint that previously had been
filed by each defendant. In its ruling, the Court in part found that plaintiffs
who did not purchase their Common Stock during the Offering could not sue under
Section 12(a)(2) of the Securities Act of 1933. Each defendant's respective
answer to the remaining claims in the consolidated complaint was filed in
November 1999 and discovery began thereafter.
In November 1998, a separate complaint was filed in the Northern
District of Illinois, Eastern Division, alleging that the Company, certain of
its officers and directors, and the underwriters of the Offering are liable
under the federal Securities Act of 1934 for making supposedly fraudulent
material misstatements of fact and omitting to state material facts necessary to
make other statements of fact not misleading in connection with the solicitation
of consents to proceed with the Offering from certain of the Company's preferred
stockholders. The complaint alleges that the action should be maintained as a
plaintiff class action on behalf of those former preferred stockholders whose
shares of preferred stock were converted into Common Stock on or about the date
of the Offering, excluding the defendants, other officers and directors of the
Company, members of the immediate families of all individual defendants, and any
entity in which a defendant has a controlling interest. The complaint seeks
unquantified damages as provided for under the federal securities laws, pre- and
post-judgment interest, attorneys' fees, and expert witness fees. In March 1999,
the preferred stockholders' complaint was reassigned to the judge hearing the
consolidated complaint described above. Thereafter, pretrial proceedings
involving the preferred stockholders' complaint were further consolidated with
that litigation. In October 1999, all defendants filed a joint motion to dismiss
the preferred stockholders' complaint; briefing on that motion was completed in
March 2000. To date, the Court has not ruled on the motion to dismiss the
preferred stockholders' complaint nor has the Court indicated when it
anticipates ruling.
The Company, the defendant directors and the defendant officers each
have retained counsel for both of the above-described suits and intend to defend
against both complaints vigorously. Although the Company believes that the
allegations of the complaints are without merit, it is not feasible for the
Company to predict at this time the outcome of either suit or whether the
resolution of either suit could have a material adverse effect on the Company's
results of operations, cash flows or financial condition.
12
<PAGE> 13
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
approximately $1,028,000 for capital expenditures primarily related to the
further expansion of the Company's existing manufacturing facility and the
purchase of operating equipment and $7,006,000 for working capital and other
general corporate purposes. The remainder of the net proceeds has been invested
by the Company, pending its use, in short-term, investment grade,
interest-bearing obligations.
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
first quarter of 2000.
13
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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: May 12, 2000 By: /s/ JOSEPH E. CROSS
------------------------------------
Joseph E. Cross
President, Chief Executive Officer
(principal executive officer) and a
Director
Date: May 12, 2000 By: /s/ JESS JANKOWSKI
------------------------------------
Jess Jankowski
Acting Chief Financial Officer, Corporate
Controller, Treasurer and Secretary
(principal financial and chief 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)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------- -----------
HISTORICAL:
Weighted average common shares outstanding 13,008,964 2,593,718
============= ===========
Net loss $ (1,434,559) $1,575,902)
============= ===========
Net loss per common share $ (0.11) $ (0.13)
============= ===========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 809,584
<SECURITIES> 19,994,627
<RECEIVABLES> 712,449
<ALLOWANCES> 118,000
<INVENTORY> 987,034
<CURRENT-ASSETS> 23,094,061
<PP&E> 4,126,794
<DEPRECIATION> 2,096,831
<TOTAL-ASSETS> 25,305,218
<CURRENT-LIABILITIES> 1,605,971
<BONDS> 0
0
0
<COMMON> 49,629,424
<OTHER-SE> (25,930,177)
<TOTAL-LIABILITY-AND-EQUITY> 25,305,218
<SALES> 487,171
<TOTAL-REVENUES> 618,921
<CGS> 818,753
<TOTAL-COSTS> 2,336,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,434,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,434,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,434,559)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
