8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C., 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date Of Report (Date Of Earliest Event Reported): October 27, 2005

NANOPHASE TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Commission File Number: 0-22333

Delaware	36-3687863
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1319 Marquette Drive, Romeoville, Illinois 60446

(Address of Principal Executive Offices, Including Zip Code)

(630) 771-6700

(Registrant’s Telephone Number, Including Area Code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act(17CFR240.14a-12)

¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act(17CFR240.14d-2(b))

¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act(17CFR240.13e-4(c))

Items to be Included in this Report

Item 2.02. Results of Operations and Financial Condition

On October 27, 2005, Nanophase Technologies Corporation (“Nanophase”) issued a press release announcing its financial results for the quarter ended September 30, 2005. A copy of the press release is being furnished as Exhibit 99.1 to this report and is incorporated herein by reference.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

On October 27, 2005, Nanophase received a fully-signed Promissory Note executed by BYK-Chemie USA (“Lender”), a customer of Nanophase, in favor of Nanophase in an original principal amount of $1,597,420. The proceeds of the Promissory Note are to be used to buy, install and commission certain equipment which is then to be used for fulfillment of orders by Lender and other uses. The outstanding principal balance of the Promissory Note is payable in three equal installments on January 30, 2009, April 30, 2009 and December 31, 2009. Interest accrues and is payable on a quarterly basis one year after the equipment referenced above is installed at the rate of 100 basis points over the average daily London Inter-Bank Offered Rate for the preceding quarter. A copy of such Promissory Note is being filed as Exhibit 99.2 to this report and is incorporated herein by reference.

Item 9.01.     Financial Statements and Exhibits

99.1    Press Release dated October 27, 2005.

99.2    Promissory Note dated October 27, 2005 executed by BYK-Chemie USA in favor of Nanophase Technologies Corporation.

Signature(s)

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 hereunto duly authorized.

	Nanophase Technologies Corporation
Date: October 27, 2005	By:	/s/    JOSEPH CROSS
		JOSEPH CROSS Chief Executive Officer

EX-99.1

EXHIBIT 99.1

NANOPHASE TECHNOLOGIES ANNOUNCES THIRD QUARTER REVENUE

22% Year-Over-Year Revenue Growth; 38% Year-Over-Year Product Sales Growth

Romeoville, IL, October 27, 2005 – Nanophase Technologies (Nasdaq: NANX), a technology leader in nanomaterials and nanoengineered products, announced the highest revenues during a third quarter in the Company’s history and record revenues for the first nine months of 2005. Based on the financial data accompanying this release, the Company’s results are stated approximately as follows.

For the quarter ended September 30, 2005, total revenues rose to $1.7 million compared with $1.4 in the third quarter of 2004, or a revenue increase of 22% year-over-year. Comparing the same two periods, product sales increased to $1.6 million versus $1.1 million in 2004, or a product revenue growth of 38% year-over-year. Nanophase reported a third quarter 2005 net loss of $1.53 million, or $0.09 per share (fully diluted), compared with a net loss for the third quarter of 2004 of $1.66 million, or $0.09 per share (fully diluted). The Company noted that the 2005 third quarter net loss was negatively impacted by an unplanned non-cash accounting adjustment for a facility lease of approximately $280,000, or $0.02 per share (fully diluted).

For the first nine months of 2005, total revenues rose to $5.4 million compared with $4.2 million in the first nine months of 2004, for a revenue increase of $1.2 million, or 28% year-over-year. Comparing the same two periods, product sales increased to $5.1 million versus $3.5 million in 2004, for a product sales increase of $1.6 million, or an increase of 46% year-over-year. Nanophase reported a net loss for the first three quarters of 2005 of $4.04 million, or $0.23 per share (fully diluted), compared with a net loss for the same period of 2004 of $4.58 million, or $0.27 per share (fully diluted).

“Third quarter revenue growth continues the solid growth trend seen earlier in 2005 and represents the highest third quarter revenue in the Company’s history,” stated Joseph Cross, Nanophase’s president and CEO. “Our first priority is continuing revenue growth along a planned path to future profitability. We have reached record revenue in each of the first three quarters with the majority of revenue growth occurring in product sales, which, we believe, is a positive trend for the future. During the first nine months of 2005, Nanophase has already exceeded the total revenues for 2004. Equally important, we have achieved significant product revenue growth without materially adding to manufacturing overhead as demonstrated in gross margin growth.

“While gross margins fluctuate due to product mix in any quarter, gross margin increased to 12% of total revenues during the third quarter of 2005 versus 5% in the third quarter of 2004. Comparing the first nine months of 2005 to the same period of 2004, gross margin grew to 16% of revenues versus 6% in 2004, or an improvement of 167% year-over-year. This is consistent with our financial models that predict increasing gross margins with additional volume.

“Operationally, Nanophase continues to make solid progress reducing variable manufacturing cost on volume products which directly translates into improved gross margins going forward. We have introduced new nanomaterial products and plan to continue that development pace based on market-pull opportunities with our market partners, strategic new market initiatives, and potential new customers. We expect organic product sales growth through our current market partners – BASF, Altana Chemie, and Rohm & Haas CMP Technologies, as well as new product development and introduction. We are also experiencing solid business development opportunities in several market areas and expect some of these opportunities to mature into revenue producing situations over time.”

Nanophase has scheduled its quarterly conference call for October 27, at 4:00 PM CDT (5:00 PM EDT), which will be hosted by Joseph Cross, president and CEO, and Jess Jankowski, Chief Financial Officer. The call may be accessed though the Company’s website, http://www.nanophase.com, and clicking on the link under Investor Relations and Calendar of Events. If you are unable to attend, a replay will be available through November 3, 2005, by dialing 706-645-9291 and entering code 1448328, or by logging onto the Company’s website and following the above instructions.

Nanophase Technologies Corporation (NANX), www.nanophase.com, is a leader in nanomaterials technologies and provides nanoengineered solutions for multiple industrial product applications. Using a platform of patented and proprietary integrated nanomaterial technologies, the Company creates products with unique performance attributes from two ISO 9001:2000 and ISO 14001 facilities. Nanophase delivers commercial quantity and quality nanoparticles, coated nanoparticles, and nanoparticle dispersions in a variety of media. The Company owns or licenses 22 United States and 50 foreign patents and patent applications. Information about Nanophase may be found in the Company’s public filings or on its website.

This press release contains words such as “expects”, “shall”, “will”, “believes” and similar expressions that are intended to identify forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such statements in this announcement are made based on the Company’s current beliefs, known events and circumstances at the time of publication, and as such, are subject in the future to unforeseen risks and uncertainties that could cause the Company’s results of operations, performance and achievements to differ materially from current expectations expressed in, or implied by, these forward-looking statements. These risk and uncertainties include the following: a decision by a customer to cancel a purchase order or supply agreement in light of the Company’s dependence on a limited number of key customers; uncertain demand for, and acceptance of, the Company’s nanocrystalline materials; the Company’s manufacturing capacity and product mix flexibility in light of customer demand; 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 in which the Company may become involved; and other risks described in the Company’s report on Form 10Q filed May 9, 2005 and other filings with the Securities and Exchange Commission. In addition, the Company’s forward-looking statements could be affected by general industry and market conditions and growth rates. Except as required by federal securities laws, the Company undertakes no obligation to update or revise these forward-looking statements to reflect new events, uncertainties or other contingencies.

NANOPHASE TECHNOLOGIES CORPORATION

BALANCE SHEETS

(Unaudited)

	September 30, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	259,164		$	475,185
Investments		8,284,208			11,155,126
Trade accounts receivable, less allowance for doubtful accounts of $24,271 on September 30, 2005 and December 31, 2004, respectively		972,299			792,662
Other receivable		—			3,498
Inventories, net		875,857			837,336
Prepaid expenses and other current assets		243,385			499,697
Total current assets		10,634,913			13,763,504
Equipment and leasehold improvements, net		6,849,774			7,457,764
Other assets, net		626,696			571,027
	$	18,111,383		$	21,792,295
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debts	$	141,449		$	579,472
Current portion of capital lease obligations		—			11,826
Accounts payable		464,917			324,485
Accrued expenses		1,190,104			894,022
Total current liabilities		1,796,470			1,809,805
Long-term debt, less current maturities		94,300			—
		94,300			—
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; 17,972,592 and 17,895,482 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively		179,726			178,955
Additional paid-in capital		72,263,127			71,987,565
Accumulated deficit		(56,222,240	)		(52,184,030	)
Total stockholders’ equity		16,220,613			19,982,490
	$	18,111,383		$	21,792,295

NANOPHASE TECHNOLOGIES CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
Revenue:
Product revenue, net	$	1,579,552		$	1,144,010		$	5,105,312		$	3,497,999
Other revenue		95,062			233,108			267,409			714,547
Total revenue		1,674,614			1,377,118			5,372,721			4,212,546
Operating expense:
Cost of revenue		1,466,790			1,311,622			4,505,554			3,952,908
Research and development expense		486,346			437,941			1,457,026			1,389,638
Selling, general and administrative expense		1,043,907			1,024,581			3,381,243			3,187,758
Lease accounting adjustment		279,810			—			279,810			—
Total operating expense		3,276,853			2,774,144			9,623,633			8,530,304
Loss from operations		(1,602,239	)		(1,397,026	)		(4,250,912	)		(4,317,758	)
Interest income		73,054			51,600			209,471			108,386
Interest expense		(5,309	)		(16,266	)		(26,022	)		(60,892	)
Other, net		(213	)		(289,080	)		29,253			(288,320	)
Loss before provision for income taxes		(1,534,707	)		(1,650,772	)		(4,038,210	)		(4,558,584	)
Provision for income taxes		—			(7,500	)		—			(22,500	)
Net loss	$	(1,534,707	)	$	(1,658,272	)	$	(4,038,210	)	$	(4,581,084	)
Net loss per share- basic and diluted	$	(0.09	)	$	(0.09	)	$	(0.23	)	$	(0.27	)
Weighted average number of common shares outstanding		17,954,371			17,572,006			17,925,256			17,054,946

EX-99.2

EXHIBIT 99.2

PROMISSORY NOTE

For Value Received, the undersigned, Nanophase Technologies Corporation, a Delaware corporation, with its principle place of business at 1319 Marquette Drive, Romeoville, Illinois 60446 (“NTC”), hereby promises to pay to the order of BYK-Chemie USA, an American corporation, with its offices at 524 South Cherry Street, Wallingford, CT. 06492-7654, USA (“BYK”), or such other place as BYK may otherwise hereafter specify in writing from time to time, in lawful legal tender of the United States of America, the principal sum of ONE MILLION FIVE HUNDRED NINTY-SEVEN THOUSAND FOUR HUNDRED TWENTY AND 00/100 DOLLARS (US $1,597,420.00) (the “Principal Sum”), plus interest at the rate per annum of 100 basis points over the average daily London Inter-Bank Offered Rate (“LIBOR”) during the calendar quarter immediately before each quarter in which interest accrues (the “Interest Rate”). Altana will provide the Principal Sum to NTC on November 3, 2005. NTC will use the Principal Sum to buy, install and commission both an additional NSA reactor system, including a clean in-place air separator, and a nanoparticle dispersion unit (the “Equipment”). Until the latter of March 31, 2012 or the date that NTC has paid BYK the Principal Sum and all accrued interest under this Promissory Note, NTC’s first priority for the installed and commissioned Equipment shall be manufacturing products to fill orders submitted by BYK, and provide experimental products for evaluation by BYK.

Interest on the Principal Sum will start to accrue one year after the date that installation and commissioning of the Equipment has been completed. Interest accrual will be based on periods equal to a calendar quarter or a portion thereof (the “Accrual Period”). Interest will be calculated by multiplying [“X”]: (1) the then-outstanding balance of the Principal Sum (based on

the weighted average outstanding balance during each calendar quarter after interest starts to accrue), times [X] (2) the then-applicable Interest Rate, times [X] (3) the number of days in the then-applicable Accrual Period, divided by 365. NTC will pay accrued interest in cash, by the 30^th day after the end of each Accrual Period.

The Principal Sum will be paid in cash installments consisting of: (a) one-third of the balance of the Principal Sum outstanding on December 31, 2008, due on January 30, 2009; (b) an additional one-third of the balance of the Principal Sum outstanding on December 31, 2008, due on April 30, 2009; and (c) the remaining one-third of the balance of the Principal Sum outstanding on December 31, 2008, due on July 30, 2009. All installment payments of the Principal Sum will be made in addition to such interest as may be due, as calculated above and as reflected on the Amortization Table attached to and made a part of this Promissory Note.

Any part of the Principal Sum and accrued interest remaining unpaid under this Promissory Note after July 30, 2009 will become immediately payable upon BYK’s written demand. If for any reason the Principal Sum and accrued interest remaining unpaid under the Promissory Note are not paid by July 30, 2009, NTC grants to BYK a purchase money security interest in the Equipment as security for payment in full of any such amount of outstanding Principal Sum and accrued interest.

NTC, at its discretion, may prepay any part or all of the Principal Sum and any accrued interest at any time, without penalty. This Promissory Note shall be governed by the laws of the State of Illinois.

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NTC has signed this Promissory Note on September 12, 2005, at Romeoville, Illinois.

NANOPHASE TECHNOLOGIES CORPORATION
By:	/s/ Joseph Cross
	Joseph Cross President and Chief Executive Officer

Acknowledged and Accepted BYK-Chemie GmbH on behalf of BYK-Chemie USA, Wallingford, CT
By:	/s/ Dr. Roland Peter
	Dr. Roland Peter Managing Director Business Unit Manager Additives & Instruments Effective October 27, 2005

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Loan Amount:	$	1,597,420.00
Interest Rate		LIBOR + 1%, Floating
Latest Beginning of Interest Accrual		12/31/2007

Payment Due Dates:	4/30/2008	7/30/2008	10/30/2008	1/30/2009	4/30/2009	7/30/2009	Total
Principal Payments:				$532,473.33	$532,473.33	$532,473.34	$1,597,420.00
Interest Payments:	(1)	(2)	(3)	(4)	(5)	(6)	TBD

Notes:

1) Equals interest accrued from 12/31/07 (or the earlier of (a) 12/31/06 or (b) 1-year after the date that installation and commissioning of the Equipment has been completed) to 03/31/2008. In this case, ninety-two days’ interest at LIBOR (per Note, the average daily LIBOR for 4Q07)+ 100 basis points. Interest to accrue on quarterly (1Q08) weighted average outstanding principal balance, once interest accrual begins.

2) Equals interest accrued from 4/1/08 through 6/30/08. In this case, ninety-one days’ interest at LIBOR (per Note, average daily LIBOR for 1Q08)+ 100 basis points. Interest to accrue on quarterly (2Q08) weighted average outstanding principal balance.

3) Equals interest accrued from 7/1/08 through 9/30/08. In this case, ninety-two days’ interest at LIBOR (per Note, average daily LIBOR for 2Q08)+ 100 basis points. Interest to accrue on quarterly (3Q08) weighted average outstanding principal balance.

4) Equals interest accrued from 10/1/08 through 12/31/08. In this case, ninety-two days’ interest at LIBOR (per Note, average daily LIBOR for 3Q08)+ 100 basis points. Interest to accrue on quarterly (4Q08) weighted average outstanding principal balance.

5) Equals interest accrued from 1/1/09 through 3/31/09. In this case, ninety days’ interest at LIBOR (per Note, average daily LIBOR for 4Q08)+ 100 basis points. Interest to accrue on quarterly (1Q09) weighted average outstanding principal balance.

6) Equals interest accrued from 4/1/09 through 6/30/09. In this case, ninety days’ interest at LIBOR (per Note, average daily LIBOR for 1Q09)+ 100 basis points. Interest to accrue on quarterly (2Q09) weighted average outstanding principal balance.

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