-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AeZD8SIfxdczZzcqscpgwDkc0g1rgqCU4Bt1nP/fjI9YZpJYyMf3e3as8Hq6B7mI ytimG7G8Zn1zwITcpVVZhw== 0000950137-00-002349.txt : 20000516 0000950137-00-002349.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950137-00-002349 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NANOPHASE TECHNOLOGIES CORPORATION CENTRAL INDEX KEY: 0000883107 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PRIMARY METAL PRODUCTS [3390] IRS NUMBER: 363687863 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22333 FILM NUMBER: 630657 BUSINESS ADDRESS: STREET 1: 453 COMMERCE ST CITY: BURR RIDGE STATE: IL ZIP: 60521 BUSINESS PHONE: 6303231200 MAIL ADDRESS: STREET 1: 453 COMMERCE STREET CITY: BURR RIDGE STATE: IL ZIP: 60521 10-Q 1 FORM 10-Q 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. 2 NANOPHASE TECHNOLOGIES CORPORATION QUARTER ENDED MARCH 31, 2000 INDEX
PAGE ---- 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
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NANOPHASE TECHNOLOGIES CORPORATION BALANCE SHEETS
March 31, December 31, ASSETS 2000 1999 -------------- ---------------- (Unaudited) 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 ============== ==============
See Notes to Financial Statements. 3 4 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 5 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 6 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 7 (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 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 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 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 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 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 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 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: 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 15 EXHIBIT INDEX Exhibit Number Exhibit Name - ------ ------------ 11 Statement Regarding Computation of Loss per Share 27 Financial Data Schedule EX-11 2 STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE 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) ============= =========== EX-27 3 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 809,584 19,994,627 712,449 118,000 987,034 23,094,061 4,126,794 2,096,831 25,305,218 1,605,971 0 0 0 49,629,424 (25,930,177) 25,305,218 487,171 618,921 818,753 2,336,705 0 0 0 (1,434,559) 0 (1,434,559) 0 0 0 (1,434,559) (0.11) (0.11)
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