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: September 30, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification No.) |
1319 Marquette Drive, Romeoville, Illinois 60446
(Address of principal executive offices, and zip code)
Registrant’s telephone number, including area code: (630) 771-6708
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of November 12, 2004, there were outstanding 17,895,482 shares of common stock, par value $.01, of the registrant.
NANOPHASE TECHNOLOGIES CORPORATION
QUARTER ENDED September 30, 2004
INDEX
| Page | ||||
| PART I |
3 | |||
| Item 1. |
3 | |||
| Unaudited Balance Sheets as of September 30, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| Unaudited Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| Item 3. |
26 | |||
| Item 4. |
26 | |||
| PART II |
27 | |||
| Item 1. |
27 | |||
| Item 5. |
27 | |||
| Item 6. |
27 | |||
| 28 | ||||
2
NANOPHASE TECHNOLOGIES CORPORATION
BALANCE SHEETS
(Unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents |
$ | 560,013 | $ | 399,999 | ||||
| Investments |
13,312,833 | 4,562,364 | ||||||
| Trade accounts receivable, less allowance for doubtful accounts |
959,896 | 1,244,490 | ||||||
| Other receivable, net |
2,866 | 24,214 | ||||||
| Inventories, net |
774,196 | 682,999 | ||||||
| Prepaid expenses and other current assets |
254,814 | 659,778 | ||||||
| Total current assets |
15,864,618 | 7,573,844 | ||||||
| Equipment and leasehold improvements, net |
7,715,218 | 8,192,995 | ||||||
| Other assets, net |
558,416 | 475,980 | ||||||
| $ | 24,138,252 | $ | 16,242,819 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt |
$ | 666,191 | $ | 1,034,379 | ||||
| Current portion of capital lease obligations |
17,663 | 43,609 | ||||||
| Accounts payable |
777,531 | 438,304 | ||||||
| Accrued expenses |
845,981 | 743,771 | ||||||
| Total current liabilities |
2,307,366 | 2,260,063 | ||||||
| Long-term debt, less current maturities |
— | 251,843 | ||||||
| Long-term portion of capital lease obligations, less current maturities |
— | 11,826 | ||||||
| Total long-term debt |
— | 263,669 | ||||||
| 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; 17,895,482 and 15,902,674 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively |
178,955 | 159,027 | ||||||
| Additional paid-in capital |
71,970,090 | 59,297,135 | ||||||
| Accumulated deficit |
(50,318,159 | ) | (45,737,075 | ) | ||||
| Total stockholders’ equity |
21,830,886 | 13,719,087 | ||||||
| $ | 24,138,252 | $ | 16,242,819 | |||||
See Notes to Financial Statements.
3
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenue: | ||||||||||||||||
| Product revenue, net |
$ | 1,144,010 | $ | 1,149,500 | $ | 3,497,999 | $ | 3,720,477 | ||||||||
| Other revenue |
233,108 | 89,473 | 714,547 | 490,114 | ||||||||||||
| Total revenue |
1,377,118 | 1,238,973 | 4,212,546 | 4,210,591 | ||||||||||||
| Operating expense: | ||||||||||||||||
| Cost of revenue |
1,311,622 | 1,166,853 | 3,952,908 | 3,947,823 | ||||||||||||
| Research and development expense |
437,941 | 480,301 | 1,389,638 | 1,452,036 | ||||||||||||
| Selling, general and administrative expense |
1,024,581 | 941,949 | 3,187,758 | 3,121,698 | ||||||||||||
| Total operating expense |
2,774,144 | 2,589,103 | 8,530,304 | 8,521,557 | ||||||||||||
| Loss from operations |
(1,397,026 | ) | (1,350,130 | ) | (4,317,758 | ) | (4,310,966 | ) | ||||||||
| Interest income |
51,600 | 12,874 | 108,386 | 54,263 | ||||||||||||
| Interest expense |
(16,266 | ) | (23,472 | ) | (60,892 | ) | (87,928 | ) | ||||||||
| Other, net |
(289,080 | ) | 2,274 | (288,320 | ) | 2,274 | ||||||||||
| Loss before provision for income taxes |
(1,650,772 | ) | (1,358,454 | ) | (4,558,584 | ) | (4,342,357 | ) | ||||||||
| Provisions for income taxes |
(7,500 | ) | (7,500 | ) | (22,500 | ) | (22,500 | ) | ||||||||
| Net loss |
$ | (1,658,272 | ) | $ | (1,365,954 | ) | $ | (4,581,084 | ) | $ | (4,364,857 | ) | ||||
| Net loss per share—basic and diluted |
$ | (0.09 | ) | $ | (0.09 | ) | $ | (0.27 | ) | $ | (0.29 | ) | ||||
| Weighted average number of common shares outstanding |
17,572,006 | 15,371,023 | 17,054,946 | 15,246,489 | ||||||||||||
See Notes to Financial Statements.
4
NANOPHASE TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ending September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities: | ||||||||
| Net loss |
$ | (4,581,084 | ) | $ | (4,364,857 | ) | ||
| Adjustment to reconcile net loss to net cash (used in) operating activities: |
||||||||
| Depreciation and amortization |
1,048,293 | 1,130,103 | ||||||
| Stock compensation expense |
— | 44,663 | ||||||
| Allowance for excess inventory quantities |
(4,060 | ) | (45,892 | ) | ||||
| Changes in assets and liabilities related to operations: |
||||||||
| Trade accounts receivable |
54,635 | (17,801 | ) | |||||
| Other receivable |
21,348 | (84,937 | ) | |||||
| Inventories |
(87,137 | ) | 186,196 | |||||
| Prepaid expenses and other assets |
284,380 | 473,189 | ||||||
| Accounts payable |
116,609 | 151,935 | ||||||
| Accrued liabilities |
91,871 | (199,654 | ) | |||||
| Net cash (used in) operating activities |
(3,055,145 | ) | (2,727,055 | ) | ||||
| Investing activities: | ||||||||
| Acquisition of equipment and leasehold improvements |
(299,411 | ) | (183,918 | ) | ||||
| Payment of accounts payables incurred for the purchase of equipment and leasehold |
(200,362 | ) | ||||||
| Purchases of held-to-maturity investments |
(193,047,606 | ) | (39,299,228 | ) | ||||
| Maturities of held-to maturity investments |
184,297,137 | 40,885,945 | ||||||
| Net cash (used in) provided by investing activities |
(9,049,880 | ) | 1,202,437 | |||||
| Financing activities: | ||||||||
| Principal payment on debt obligation, including capital leases |
(427,844 | ) | (532,985 | ) | ||||
| Proceeds from sale of common stock, net, and exercise of stock options |
12,692,883 | 2,337,829 | ||||||
| Net cash provided by financing activities |
12,265,039 | 1,804,844 | ||||||
| Increase in cash and cash equivalents |
160,014 | 280,226 | ||||||
| Cash and cash equivalents at beginning of period |
399,999 | 445,684 | ||||||
| Cash and cash equivalents at end of period |
$ | 560,013 | $ | 725,910 | ||||
| Supplemental cash flow information: | ||||||||
| Interest paid |
$ | 60,892 | $ | 87,928 | ||||
| Income taxes paid |
$ | 30,000 | $ | 30,000 | ||||
| Supplemental non-cash investing and financing activities: | ||||||||
| Accounts receivable paid through offset of long-term debt |
$ | 229,959 | $ | 159,623 | ||||
| Accounts payable incurred for the purchase of equipment and leasehold improvements |
$ | 222,618 | $ | — | ||||
| Assets related to asset retirement obligation |
$ | — | $ | 82,000 | ||||
See Notes to Financial Statements.
5
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 nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.
These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2003, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, 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.
Nanophase Technologies is a nanocrystalline materials developer and commercial manufacturer with an integrated family of nanomaterial technologies. Nanophase produces engineered nanomaterials for use in a variety of diverse existing and developing markets: personal care, sunscreens, abrasion-resistant applications, environmental catalysts, antimicrobial products and a variety of polishing applications, including semiconductors, hard disk drives and optics. New markets and applications also are being developed. The Company targets markets in which it feels practical solutions may be found using nanoengineered products. The Company works with leaders in these target markets to identify and supply their material and performance requirements.
The Company also recognizes regular other revenue from a technology license and previously has recognized revenue from the occasional sale of production equipment to its technology licensee, as well as $600,000 in revenue for 2004 (only) as discussed below. None of these activities are expected to drive the long-term growth of the business. In February of 2004, the Company amended its original agreement with Rohm and Haas Electronic Materials CMP, Inc. (“RHEM”formerly known as Rodel, Inc). This amendment allows for RHEM to maintain exclusivity based upon it purchasing lower dollar amounts of nanocrystalline materials, while extending the agreement through 2009. This amendment does not require RHEM to purchase any materials from the Company in 2004, but it does require an aggregate of $600,000 in development funding be paid to Nanophase in four equal quarterly installments in 2004 to support its efforts in joint slurry product development with RHEM for current and future semiconductor technologies. All of these types of items are recognized as “other revenue” in the Company’s Statement of Operations, as they do not represent revenue directly from the Company’s Nanocrystalline materials.