Nanotechnology Now - Press Release: Nanophase Announces Fourth Quarter and 2007 Results

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Abstract:
21% Fourth Quarter Revenue Growth; 36% Annual Revenue Growth

Nanophase Announces Fourth Quarter and 2007 Results

ROMEOVILLE, IL | Posted on February 7th, 2008

For the quarter ending December 31, 2007, total revenue was $2.62 million compared to $2.17 million for the fourth quarter of 2006, representing a 21% revenue increase year-over-year (YOY) and the highest fourth quarter revenue in the Company's history. Nanophase reported a fourth quarter 2007 net loss of $1.16 million, or $0.06 per share, compared with a net loss for the 2006 fourth quarter of $1.6M million, or $0.08 per share.

For the year ended December 31, 2007, Nanophase's revenue increased to $12.21 million, compared to $8.99 million in 2006, representing total revenue growth of 36% YOY. During 2007, gross margin on sales increased to 26% of revenue, versus 22% in 2006, due to increased volume. Nanophase reported a 2007 net loss of $3.59 million, or $0.18 per share, compared with a net loss of $5.18 million, or $0.28 per share in 2006. For 2007 cash used for operations totaled $1.6 million, which was a 50% reduction or improvement from $3.2 million during 2006, reflecting increased volume and higher gross margins. Ending 2007, Nanophase noted that it had $16.7 million in cash and equivalents, which management deems to be more than adequate to fund the Company over its planning horizon.

"2007 was another solid year of revenue growth, gross margin expansion, and technical progress," noted Joseph Cross, Nanophase's President and CEO. "Each of these measures is a key focal point for the Company and has seen consistent material improvement over the last three years. Beginning in 2005, revenue has grown over 30% each year and gross margins have now almost doubled in the last 24 months. As our business model predicts and growth has demonstrated, increasing volume with a relatively fixed overhead cost results in higher gross product margins."

"Nanophase is increasingly focused on developing and delivering ready-to-use nanomaterial solutions to customers and target markets. Due to our novel ability to incorporate nanomaterials into customer-specific formulations with engineered dispersions, we have been able to add increased value to nanomaterial products, which has generated new business opportunities and led to revenue growth." Cross noted during 2007 most of the Company's key market segments experienced growth. Personal care product volume increased more than 10% year-over-year, revenue for industrial coatings increased over 500%, and architectural coating product volume increased over 50%.

Cross noted that the Company had implemented initiatives to improve sales and marketing during 2007 by hiring Kevin Wenta, as EVP of Sales and Marketing, and David Nelson as Vice President of Sales -- both with excellent experience in chemical sales. Throughout 2007, Nanophase has been improving its sales processes and honing application development to increase the Company's depth of understanding in focus applications and markets. "The increased understanding and direct application testing allows Nanophase to approach a market or customer opportunity with clear data on the value and performance of nanomaterials for their particular products," stated Cross. "We anticipate that increased application development should increase our sales success and reduce the time-to-market." Nanophase plans to add to its sales and marketing staff during 2008 to allow the Company to directly sell into additional markets.

Summary 2007 Highlights

1. Intellectual property: Nanophase received two US patents during 2007,
and owns or licenses 18 United States and 49 foreign patents and
patent applications. Additionally, Nanophase has accumulated
considerable proprietary process and application knowledge that the
Company believes provides significant market(s) advantages.

2. Introduced innovative nanoengineered products for water-based
formulations, including printed electronics, antimicrobials, and
architectural coatings. For example in architectural coatings the
nanoengineered products typically improve the scratch and mar
resistance of the coating by more than 300% while retaining high
gloss. These new coating products will be sold globally through
Nanophase's market partner, BYK Chemie; other applications will be
marketed and sold directly by Nanophase.

3. Recertified the Company's facilities and processes to ISO9001:2000,
the internationally recognized standard of manufacturing and quality
excellence, and ISO14001:2004, the international environmental
management standard.

4. Achieved 99.1% Customer Service Level on product shipments and, again,
had NO customer quality returns.

5. Nanophase employees reached a new safety record achieving 850,000
continuous working hours without a lost time accident.

6. As a responsible corporate citizen, Nanophase continued to operate all
manufacturing facilities in compliance with State and Federal
hazardous waste (RCCA), air emissions, and wastewater permits, while
meeting or exceeding applicable OSHA, TSCA, and hazardous materials
requirements.

Markets and Outlook

Nanophase expects continuing revenue growth despite some specific changes compared to 2007 revenue. Cross noted that the Company invoked customer surcharges for certain products to cover the dramatic increase in commodity (raw material) costs experienced during the last half of 2006, which were part of the product pricing during 2007. Recently, commodity costs have significantly moderated and Nanophase has reduced surcharges accordingly. At today's price levels, Nanophase would have had approximately $500,000 less in surcharge revenue during 2007. "While surcharges increased revenue during 2007, as they are applied as a billing adder, in some cases they also reduce product margins when we are not fully able to recover escalated underlying material costs," Cross stated. "So, while revenues can be reduced when commodity prices go down, gross margin, in both dollar and percentage terms, actually may increase."

Entering 2008, the Company has limited visibility regarding the possible impact of current market and economic conditions, particularly the decline in new housing, on demand for architectural and flooring products. Cross noted that revenue for both of these markets has been expanding over the past 24 months, but principally during 2007, aided in part by demand required to initially stock retail locations. Nanophase expects appreciable growth in electronics, primarily nanomaterials for CMP, and has received purchase orders and delivery schedules for $1.3 million during 2008, or about 70% growth over 2007. The Company also expects growth in sunscreens and personal care products during 2008, mainly during the second half as new EU UV regulations are predicted to increase usage for UVA protection.

For 2008, the Company estimates revenue growth of 5% to 15%. Cross noted that on a year-over-year comparison to 2007, based on current customer forecasts, the Company expects lower revenues during the first half of 2008 followed by growth during the second half. Cross stated "Current economic uncertainty in some of our markets (particularly architectural coatings), inventory builds during the first half of 2007, and the need to make-up 2007 commodity surcharge revenue, leads us to expect modest growth for 2008. We are watching the first quarter closely given this uncertainty, but anticipate lower revenues in the first half of 2008 followed by increased revenue run rate in the second half."

Nanophase has scheduled its quarterly conference call for February 7, 2008 at 4:00PM CST (5:00PM EST), which will be hosted by Joseph Cross, president and CEO, and Jess Jankowski, CFO. The call may be accessed through the Company's website, 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 February 14, 2008 by dialing 706-645-9291 and entering code 32772211, or by logging onto the Company's website and following the above directions.

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About Nanophase Technologies
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 18 United States and 49 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 Form 10K filed March 14, 2007, 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

                                                      As of December 31,
                                                    2007              2006
                   ASSETS
    Current assets:
       Cash and cash equivalents              $    563,075      $    132,387
       Investments                              16,145,844         8,434,793
       Trade accounts receivable, less
        allowance for doubtful accounts
        of $13,000 and $22,000 on
        December 31, 2007 and 2006,
        respectively                             1,403,206         1,459,391
       Inventories, net                          1,085,364           923,223
       Prepaid expenses and other current
        assets                                     298,464           534,407
         Total current assets                   19,495,953        11,484,201

    Equipment and leasehold improvements,
     net                                         7,409,666         7,608,326
    Other assets, net                              781,266           651,218
                                              $ 27,686,885      $ 19,743,745

         LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
       Current portion of long-term debts     $        -        $        -
       Current portion of capital lease
        obligations                                 43,110            32,972
       Current portion of deferred other
        revenue                                    127,273           127,273
       Accounts payable                            238,295           478,694
       Accrued expenses                          1,584,656         1,643,585
         Total current liabilities               1,993,334         2,282,524

       Long-term debt, less current
        maturities and unamortized debt
        discount                                 1,512,507         1,383,707
       Long-term portion of capital lease
        obligations                                 31,430            50,552
       Deferred other revenue, less
        current portion                             74,243           201,515
                                                 1,618,180         1,635,774

    Contingent liabilities:                            -                 -

    Stockholders' equity:
       Preferred stock, $.01 par value;
        24,088 authorized and no shares
        issued and outstanding                         -                 -
       Common stock, $.01 par value;
        30,000,000 shares authorized;
        21,088,068 and 18,995,581 shares
        issued and outstanding on
        December 31, 2007 and
        December 31, 2006, respectively            210,881           189,956
       Additional paid-in capital               90,201,131        78,380,962
       Accumulated deficit                     (66,336,641)      (62,745,471)
         Total stockholders' equity             24,075,371        15,825,447
                                              $ 27,686,885      $ 19,743,745



                        NANOPHASE TECHNOLOGIES CORPORATION

                             STATEMENTS OF OPERATIONS

                                               Years ended December 31,
                                            2007         2006         2005
    Revenue:
      Product revenue                   $11,766,565  $ 8,612,705  $ 6,444,444
      Other revenue                         442,543      378,133      357,463
        Total revenue                    12,209,108    8,990,838    6,801,907

    Operating expense:
      Cost of revenue                     9,032,187    7,057,707    5,827,719
          Gross Profit                    3,176,921    1,933,131      974,188

      Research and development expense    1,773,565    2,127,862    1,934,528
      Selling, general and
       administrative expense             5,427,863    5,302,836    4,422,011
      Lease accounting adjustment               -            -        279,810
    Loss from operations                 (4,024,507)  (5,497,567)  (5,662,161)
    Interest income                         661,512      366,701      295,935
    Interest expense                       (154,515)     (52,469)     (50,273)
    Other, net                              (73,660)       5,505       32,888
    Loss before provision for income
     taxes                               (3,591,170)  (5,177,830)  (5,383,611)
    Provision for income taxes                  -            -            -
    Net loss                            $(3,591,170) $(5,177,830) $(5,383,611)


    Net loss per share-basic and
     diluted                            $     (0.18) $     (0.28) $     (0.30)

    Weighted average number of common
     shares outstanding                  20,038,868   18,344,334   17,937,932



                        NANOPHASE TECHNOLOGIES CORPORATION

                   STATEMENTS OF OPERATIONS - EXPANDED SCHEDULE

                                               Years ended December 31,
                                            2007         2006         2005
    Revenue:
      Product revenue                   $11,766,565  $ 8,612,705  $ 6,444,444
      Other revenue                         442,543      378,133      357,463
        Total revenue                    12,209,108    8,990,838    6,801,907

    Operating expense:
      Cost of revenue detail:
      Depreciation                        1,106,242      951,899      882,867
      Non-cash equity compensation           45,144       34,805        4,935
      Other costs of revenue              7,880,801    6,071,003    4,939,917
        Cost of revenue                   9,032,187    7,057,707    5,827,719
          Gross Profit                    3,176,921    1,933,131      974,188

      Research and development expense
       detail:
      Depreciation                          232,180      246,261      259,627
      Non-cash equity compensation           92,831      133,507       23,953
      Other research and development
       expense                            1,448,554    1,748,094    1,650,948
        Research and development
         expense                          1,773,565    2,127,862    1,934,528

      Selling, general and
       administrative expense detail:
      Depreciation and amortization          82,838       71,559       86,021
      Non-cash equity compensation          435,430      476,898       44,421
      Write-down of equipment                75,152          -            -
      Patent Abandonment                        -        149,811          -
      Lease accounting adjustment               -            -        279,810
      Other selling, general and
       administrative expense             4,834,443    4,604,568    4,291,569
        Selling, general and
         administrative expense           5,427,863    5,302,836    4,701,821
    Loss from operations                 (4,024,507)  (5,497,567)  (5,662,161)
    Interest income                         661,512      366,701      295,935
    Interest expense                       (154,515)     (52,469)     (50,273)
    Other, net                              (73,660)       5,505       32,888
    Loss before provision for income
     taxes                               (3,591,170)  (5,177,830)  (5,383,611)
    Provision for income taxes                  -            -            -
    Net loss                            $(3,591,170) $(5,177,830) $(5,383,611)

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Contacts:
Nanophase Technologies Corporation
1319 Marquette Drive
Romeoville, IL 60446

Phone: +1-630-771-6700
Fax: +1-630-771-0825

Sales & Marketing +1-630-771-6709

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Investor Relations +1-630-771-6708