Jess Jankowski - President & Chief Executive Officer Frank Cesario - Chief Financial Officer

James Liberman - Wells Fargo Advisors Bill Chapman - Morgan Stanley John Gay - The Quiet Investor

Good day, ladies and gentlemen and welcome to the Nanophase year-end 2013 financial conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) The words expect, anticipates, plans, forecasts and similar expressions are intended to identify forward-looking statements. Statements contained in this news release 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 beliefs and a number of important factors that could cause actual results for future periods to differ materially from those expressed in this news release. These important factors include, without limitation, a decision of a customer to cancel a purchase order or supply agreement, demand for and acceptance of the company’s nanocrystalline material, changes in development and distribution relationships, the impact of competitive products and technologies, possible disruption in commercial activities accessioned by terrorist activity and armed conflict and other risks indicated in the company’s filings with the Securities and Exchange Commission. Nanophase undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. I would now like to turn the call over to President and CEO, Mr. Jess Jankowski. Sir, you may begin.

Thank you, Shannon. Good morning everybody. Also welcome aboard to our new shareholders. We are glad you were able to join us for our fourth quarter 2013 financial conference call. Frank Cesario, our CFO has joined me again today. During this call, we will be talking a bit about our newer initiatives as well as updating you on our existing business. At a high level, and as we have discussed in the press release, in terms of revenue, we ran ahead of last year through November but final delivery timing put us slightly behind 2012 number. While this was disappointing and I won't tell you otherwise, it also indicates that the better part of $1 million of lost revenue related to the sun setting of the original CIK license agreement and our old CMP polishing business, was replaced by new and expanding revenue during 2013, which is good news. My feelings and the feeling of all of us here at Nanophase is that finishing a little higher or a little lower than the prior year has no bearing on our bookings. We know that we need a significantly increased revenue to get where we want to be and the new markets we would discuss and continue to pursue offer us the ability to do just that. If anything, the final 2013 revenue figures serve as a reminder that flat to moderate growth is not acceptable and doesn’t serve any of our best interest. We are all here for much more. We are positioned for it and we are expected to deliver it. More on this later. After Frank provides a short overview of our financial results, I will go into more detail about our position as we enter 2014. Frank?

Thanks, Jess. Good morning. This is Frank Cesario. Before I begin today's overview of our financial results from the fourth quarter and fiscal year 2013, please remember that all financial results are stated in approximate terms. Revenue for the fourth quarter was $1.8 million versus revenue of $2.7 million for the comparable 2012 quarter. For the year revenue was $9.6 million this year versus $10.0 million last year. Gross margins were 16% for the quarter and 27% for the year versus 25% and 26% for the comparable period of 2012. The net loss for the quarter was $0.9 million or $0.03 per share and $2.5 million or $0.09 per share for the fiscal year ended December 31, 2013. Compared to net losses of $0.6 million and $2.4 million or $0.02 per share and $0.10 per share, respectively in the comparable 2012 period. We ended the quarter at $3.3 million in cash. Our company remains debt free. Jess?

Thanks, Frank. We previously shared our view that full year 2013 numbers would be in the $10 million range, plus or minus. While revenue was at that level, you should know that we don’t see this company staying at that level nor do we see GDP type growth as acceptable. Our singular goal and vision is set at accruing high value to your shareholders and our stakeholders. That means continuing with the cost management work we have been doing, while still affording ourselves the resources to achieve our growth potential and focusing on those business areas that can make a real difference. Those are my expectations, which are shared throughout our organization. So how are we going to do this? First, we will continue to excel at the most successful legacy businesses we have already developed such as our personal care business, which is composed largely of our active ingredients for inorganic sunscreens. The sunscreen industry as a whole was down in 2013 but our business increased to an all time high. We believe that our growth is a reflection of a growing consumer preference for full spectrum inorganic sunscreen, zinc oxide and titanium dioxide, which are also referred to as physical sunblockers in the industry, versus traditional organic sunscreens like [indiscernible]. Dermatologists have long preferred zinc oxide as a full spectrum UV blocker and movement in consumer preferences along with regulation of competing solutions that seem to favor us, converge to help in this area. As we stated last quarter, our personal care sales may still fluctuate, particularly during any short period of time, but overall we see a friendly market for our solutions. Second, we have been working hard to build upon our existing surface finishing or polishing businesses. We refer to this business generally as surface finishing technology. We have engaged this marketplace aggressively and have been received very well. We can apply what we have learned in this market over the past several years in a way that appears to offer us significant value and we are starting to see that being validated in the marketplace. We are certain surface finishing and especially very high-end optics polishing, will become more of a strategic growth area for Nanophase going forward. Advances in photonic devices and related lenses, mirrors, prisms and other optics are increasingly being driven by the demand for finer and finer surface finishes via precision polishing, which are lead to reduced signal loss and light scattering. The improvement of which is being demanded by the market. In other words, we are about solving important commercial problems, not if any need [ph] products first than seeing if there is a market for them. Building on a successful Q4 exhibition and technical presentation at Optifab 2013 in New York, the largest optical fabrication trade event in the world, we featured our products at Photonics West several weeks ago in San Francisco. Photonics West is the premier North American trade show for the optics and photonics industry broadly and it gave Nanophase the opportunity to get our name out there and meet with several current and prospective customers during the show. Our highly engineered nanocrystal and ceria and alumina particle slurries are positioned to become the super polish [indiscernible] of choice in these demanding applications. Moreover, since the company's customers in this area in contrast to other markets in which we participate, as the actual end users of the products that are being sold, we gain greater customer intimacy which helps us to better understand their requirement. To this end, we are expanding our capability and direct application support for this market in a number of ways, including construction of a polishing laboratory in Romeoville to help support our growing business development activities. We also plan to attend and exhibit at the Optatec Show in Frankfurt, Germany in May of this year, which is similar to the Optifab show in the U.S. They alternate every other year and Optatec will represent the first time Nanophase will exhibit as a more or a less consistent player in this market and be perceived that way. The momentum is building here, small amounts of new revenue have already begun to come in and we see this pipeline as being significant with revenue streams beginning in 2014 and growing nicely thereafter. We think that this will develop into a nice 7-figure business overtime. Third, we have gone to the marketplace with both our battery, our energy storage, and our energy control solutions with targeted industry customers. While we are further along in the battery applications, based on test results and market feedback in both areas, we see opportunity for profitable volume here. We were right to attack these areas and as a potential to create game changing revenue streams. There are still plenty of variables as we are a new entrant in these two market spaces but we have taken what we know how to do very well and applied it in a manner that offers significant value. At this point, there are too many moving parts to guess at timing, but I would be disappointed if customers don’t embrace at least one, if not both solutions, on a commercial basis in 2014, which should result in 2015 commercial revenue. We may they also see modest sampling and ramp up revenue in 2014. You will be hearing much more about our progress in the surface finishing technologies in the coming months. Our focus is razor sharp. We see these as the areas where we can win in the near term and we are going after them. Shifting gears, I also wanted to address something that comes up frequently regarding company news. Mainly, that we don’t issue enough of it. In the coming year, you will probably notice more marketing pieces, particularly around various surface finishing technologies activity like the ones I discussed above in optics polishing. The purpose of these will be to establish Nanophase in the markets we serve or would like to serve by reaching out to various customer constituencies. I am not a fan of investor press releases for their own sake, particularly when they don’t include material financial growth, contracts being signed, patents being granted, or things of that nature. We are in a business that must be dealt over extended selling cycles. These cycles typically don’t result in steady flows of news. As we grow and achieve critical mass, become a self-sustaining company and achieve a more rapid growth trajectory, all of which I expect us to achieve over the next few years, we will begin to engage in more purely investor related outreach. Until we get nearer to that point, the lack of material financial and commercial substance we would have to share if we chose to begin to highlight them in additional press releases, can serve to undermine market value and reduce the potential impact of more substantial news. Results matter. And until we can speak more directly about them, we will continue to follow our current approach. With all that said, let me be very clear. I believe that Nanophase has an excellent investor value proposition today. As is my executive team and the energetic technical and business development teams we have built here, or none of us would be at Nanophase. We are highly incentivized based upon growth in our stock market value and we have our eyes on that prize. We are very well aligned with our shareholders as people running entrepreneurial company should be. With that I will finish up. Although most of our investors listen to the webcast and review the transcript after the live call, we would like to invite those participating in today's call to ask any questions you may have or to share your comments. Shannon, would you please begin the Q&A session.

(Operator Instructions) Our first question comes from James Liberman of Wells Fargo Advisors. You may begin. James Liberman - Wells Fargo Advisors: It' really good to hear your presentation.

Hey, James. Who is the polar work [ph] factory? James Liberman - Wells Fargo Advisors: Well, we are in the teams again. It's quite brisk.

We assume it was seven this morning and we were grateful. But I guess you are going to get it next week. James Liberman - Wells Fargo Advisors: Well, I can't wait. So I am actually quite impressed by your dialog and you presented -- how you are laying things out going forward. And this is actually the most intriguing, your presentation on the surface finishing technology. And I wonder, is there any other clarity or any other way in which we might visualize this. You said this for optics, are the opportunities for optics that great or are there many other offshoots of this?

Really, it's all of the above. This business is exciting for us. If you got a minute. So for years we were in the CMP ingredient supply business through Roman House. We were selling them a dispersion which they put into other chemical chemistry to make a slurry. And in the middle of that we have developed, we always had a small optics polishing business. Several hundred thousand dollars worth of revenue. Companies that you have heard of, that we are not disclosing, but we have had that business for years. And we really never focused on it partly because of the exclusive we had with Roman House, partly because we didn’t had all the expertise in-house. Now, we looked at it and realized that in addition, we are going after other polishing applications, but we realized that, look we are having success in the polishing market with optics polishing and we have for a number of years at a low level. We have learned a lot between the other polishing activities and some business development activities we have been working out relative to other areas regarding dispersions, and we determined that we could make a much better slurry than we had been making over the years. And that if we devoted some time to it, we would probably take a run at it and say, okay, let's give it some months. Let's see what we can build. We started doing that and we got very good feedback. We picked up some small customers, we started working on some bigger customers. We went to Optifab in Rochester, New York in October. And that market -- those are the optics manufacturers and those are people making lenses and prisms and mirrors. That market could be seven-figure revenue stream over a period of time. What I like about it, in a couple of months -- first of all, I alluded to it in my script, but our buyers in addition to being users, are engineers. So you have got our engineers talking to their engineers. Explaining how this works, tweaking it. We have got our people that have been out there, working on how we can help them improve processes as well building a small and when we -- I am always serious [ph], say we are building a polishing lab. Here, because it's a small dollar investment, it's more of leveraging all the things we have learned over the years. And going to these shows between myself and Kevin and Pat Murray, and some of the other people we have on the team on the sales side the technology side, you just realize we have a wealth of knowledge of here that’s very useful in those industries and they are underserved. And they are probably underserved because a really big customer for us, probably isn't going to be a seven figure customer, or at least it would be rare. Whereas in the other polishing areas when you are in CMP, you are talking about $20 million customers, $10 million customers. And so you have got these big companies throwing tons of resources at them. These guys, we can help them move forward. They are very happy with what they are seeing. The buying cycle is quicker. Now that always has risk in it. The other side of it is, you could probably get engineered out more quickly, but it requires us to be nimble. The buying cycle is quicker. I expect us to have business from the Optifab show, to some degree or another, probably in the second quarter. Which, for most companies, to say you brought business within six months into a company, that’s okay. In our business, with the lead times we content with, that’s an [indiscernible]. And that’s an areas where I view this business as part of our growth strategy going forward. I view it as, we could build a few million dollars of business over the next few years, the profitability of the business is like the rest of our business. It's good. That will help us keep going. It will continue to grow. There are lots of adjacencies, Jim, to your point. But a few million, that seven figure we can get to which will probably be mid seven, it's just optics polishing. There is other adjacencies the more we learn about it. And those things allow us to look at the energy applications which move a little more slowly. You know, as is said, I am hoping we get some revenue. I would be disappointed if we don’t by next year. But this one is a nice one. And we have a lot of resident experience here and we validated that. You now I was in Optatec with the team that was just at Photonics West. We will be at Optatec in May. And you realize that people haven't heard of us. They are not familiar with Nanophase as a company in this area. And there is a lot of opportunity here. James Liberman - Wells Fargo Advisors: It's very good here. Is CMP totally out because it's so difficult to market or is this really the focus now going forward?

There are other areas of polishing that we will also focus on. And I don’t want to get into all the details because they are nascent, but there is a big field of polishing. And what we would like to do, focus more on the areas where we have essentially a product. Where the end user is buying our material as it is, relaying on our expertise in tandem with the customer connection we need to make it work. Whereas in CMP, we were providing really a world-class slurry to a company who was trying to incorporate it in a series of other things. And in addition to doing it exclusively, it's hard to move fast when you don’t that acceptance [ph] of the customer. Plus, the CMP business, in the generic sense, is not as quick moving, because you are talking about $4 billion wafer fabs, you are talking about the tons of investment in the product line, in the other. Where in this fine polishing, you have got lots and lots of parts, military parts, laser parts, all these other areas. And they are highly engineered but it's not the investment and each one isn't quite the same.

Thank you. Our next question is from Bill Chapman of Morgan Stanley. You may begin. Bill Chapman - Morgan Stanley: For the battery, if I could ask, do you anticipate a company to be, maybe do like -- or like a sampling process, going market with a limited sample? Or is this something that would be all or nothing with them, applying your nanomaterial.

Hey, Bill, it's Jess. I mentioned sampling in my script, in my prepared comments. And that... Bill Chapman - Morgan Stanley: That’s the question.

Yes. It had nothing to do with how they would market. We would anticipate they would start out with a launch of one area and then build in these areas within battery. There is a lot of striation in this market. Every battery company has multiple product lines, whether it's this type of battery. You know we are very different. I would anticipate we would get the initial launch over a certain group of products, or a certain area, and then a second line of them, start to grow from there. But we think we have a solution that essentially could be broadly applied. It's just a question of what is the benefit -- what is the benefit to the company and if they are able to glean a benefit, how do they want to approach it? One of the things we like about this business is that we think we can give them a roadmap to things ranging from better performing to less expensive batteries. And so that’s up to the individual target customer, whether they choose the market first on the one side and then build it into the other or build the other way. Or maybe Frank could add some color to that.

No, it's very similar to what we talked about in surface finishing technologies. We are selling to the user of our materials and then what they go do with it. You are talking about a very engineering focused customer base and that plays to our strengths very nicely. So I certainly echo what Jess said about the industry. Bill Chapman - Morgan Stanley: Okay. And let's see, I missed a little bit of your prepared remarks, and I apologize for that, but you mentioned on the Q3 call that you were in the phase then that you are doing the testing for the battery company or companies. And now, and you are anticipating they will start their own testing. Is that where we are at right now?

We are in both places. Bill Chapman - Morgan Stanley: Okay.

I mean there is -- part of our problem, Bill with -- this is one area where we differentiate, like in the polishing business, we are very deep on the experience side and we understand a lot of the industry requirement and we have a lot of the tools here to do that testing. On the battery materials side, first of a all we are a material not the product. Second of all, they might do, eight, ten a dozen tests that really are better done with their own equipment and their own brand of battery. We have done a lot of the tests we can accomplish here to give them credible data. To get them to basically agree to go forward. And one of our strategies and how we approach is, is to work together and share our data, share the data they get with our materials. That’s part of the way we are approaching the market. But they will be doing testing. And I think, without getting into specifics, there are companies that are doing that thing. And as you might imagine, when you talk about that different number of test, some are very best tests -- some of the first testing we did of course was at the highest possible discharge rate what happens. Because those test are easy. They take a few weeks. And then there is the long term test at the end of it and there is a bunch of things they are doing. But their process is being started with some and hopefully as we get through the year, it will be broader in the industry and we expect some good progress there. Bill Chapman - Morgan Stanley: And then on the windows. We have been talking about, this is taking longer testing process. Is that, that’s in motion right now with several parties? On the window application.

The controls are necessarily -- you are talking about the energy control, isn't necessarily [ph]... Bill Chapman - Morgan Stanley: Yes.

Window base that, it could be a laminator, film, things of that nature. Bill Chapman - Morgan Stanley: Okay.

That is then testing with some, it's not as far, it's not as broadly rolled out. We have got some alphas there we are working with. So no a commercial basis, it is being worked on but I think that one's go further away. Bill Chapman - Morgan Stanley: Okay. And generally, speaking, is that more of an economic cost reduction or is it more performance, or both?

I think foremost would be performance, but I think both. Generally when you are talking about our materials, nanomaterials in general, you could basically pay the same amount for better in areas that we find this is actually -- the proposition of them always work obviously, but you could basically be cost competitive and have better performance or you could reduce the quantity as typically it takes fewer material when you go the nanoscale and get similar performance. And so again, similar to the example earlier, it's almost up to the producer about whether they want to take advantage of or the other. It's again a little bit of a roadmap, technology roadmap. My ideal situation would be that they look at it in one way and then realize that it could be a ubiquitous advantage throughout their product line. Obviously, I am biased, but so far so good on that, on those results. And lot of our internal work is still ongoing but a lot of it has been done and it's got some marketplace issues we have to get through.

And just to be clear on what Jess is saying, simpler finance guide level. I think you are talking about us having the flexibility to optimize this with the customer. And that’s a huge value advantage to us as a potential supplier.

Thank you. (Operator Instructions) Our next question comes from Rand Key [ph] of RKA [ph]. You may begin.

Couple of questions here. First one has to do with your battery technology. The current strategy, are you pursuing a proprietary technology approach to your battery business? Are you looking to second source on existing technology and thereby coming in with kind of a second backup to what looks to be a promising technology so the current customer can say, hey, we have got two people on this and we are pretty excited about it. We are not beholden to one customer for it so we think we will go that way.

Rand [ph], we absolutely want to be the product supplier, the solution supplier to the industry. We think we offer something unique and valuable and we want to -- we are certainly helpful is the customers embrace it and say, yes, this is what we want to use. So...

Does that mean you guys are proprietary and specifically you are not in pursuing another line of similar or along the same lines, like now I will turn on over, something like that.

We are definitely not a me too. We are bringing something we think that’s novel and beneficial to the industry. And so this is not a me too application.

We believe that our technology both the way by which we manufacture it, the material as well as the chemistry we add to it, is unique. And we have internally compared ourselves to other technologies and materials and seen that they can't achieve the results we can. Now, obviously, you can't take that -- you can't sit on your laurels and assume you are going to win that way. But it's certainly, from our perspective, a proprietary advantage at this point.

Okay. In the last conference call, there was a lot of excitement about the battery technology. And I am wondering, do you guys consider that your breakout solution or do you consider this new found -- of finding and discovering other opportunities in the polishing business now your breakout solution.

It only depends how you would define breakout solution. I think the polishing business can and will grow quickly enough to make us a self-supporting company. And I think as we get further into that and look at those adjacencies and how we develop that market, there is a lot of business there for us that could easily be a seven figure type business. The other, the battery business, I mean it remains to be seen, obviously. I think the upside is higher but I also think the bites are bigger. So each success has a potential to accrete more revenue, so in that sense it could be a breakout where we could end up with a customer or a series of customers rivaling the BASF volume to date. And there area is different. What I like about the way we are going at this, is that it's kind of this market basket approach relative to timing. We have got this steady -- I think it's going to be a steady flowing polishing business that’s going to grow, that’s going to be profitable, that’s going to support the business, and it's starting this year. Then we have got the battery business coming along. That, as I said, I would be disappointed if somebody doesn’t adopt us commercially for next year. We should have revenue there. The other energy control solution, little further out. Additionally, we have other technologies internally and our plan is, you know we can only focus on so many things at once. So you develop the market, you get it out there. You have either a big success and it becomes a big chunk of the company, you have small to moderate enough success to keep it going. And then you move on the next thing. And I believe that, if you talk to our founder, Dr. Richard Siegel, our name Nanophase Technologies intentionally ends at a plural. So it's effect [ph] was, we could do a lot with what we have. Now early on and the people that have been around, or shareholders that have been around for a long time, will know that we have occasionally diffused our efforts just too much. But we decided, okay, we could manage these three things, [indiscernible] personal care and legacy business, as they develop we will add more to it, I think we are on a really good path. And as I said, I think right now is a good time for Nanophase. So it's going to be speed bumps but it looks pretty good.

The thing you just alluded to, actually with having a number of opportunities to look at and kind of picking the right one, Jess, I think is the kernel of what I think the market and as a shareholder investor, we are looking. It's not, I presume there is no guarantees but the cost of all, of pursuing these various technologies, with that in mind, do you guys feel -- you alluded to, in one of the last conference calls of begin cash flow positive in the coming year. Do you expect that still to be able to happen with the new lab, the battery testing etcetera, etcetera?

This is Frank. Let me take a shot at that one. On a quarterly basis, this is what we have said and sure we want to get there quickly. We see the ability to get there quickly. It does depend on customer acceptance but understand, we are not far away today. We have focused this entity to be very close from a cash flow perspective right now and we are handling, the testing, these new areas, the development in these new areas, with existing resources. And you are seeing that in our current financial statements. You saw last quarter and the quarter before and the quarter before that. So we have the bandwidth to address and without a great deal of success, we are making money. And we define these as our three opportunities because they are, we believe, the three with the most potential success for the company. As, Jess said, in the immediate term, short-term and a little bit longer-term.

So that being said, Frank, do you predict breakeven EBITDA in the current fiscal year?

You are killing me because we don’t guide revenue. And to some extent that’s because, as Jess alluded to, we have to find out when and how fast customer accept these products, at what level. So we are getting acceptance now, starting on surface finish, but it would be disservice for me to tell you that I am going to just put my stake in the ground and say on the next application it's going to be May versus June versus April. I don’t know that. What I do know, is we are going to be close. And I do know that our financials should continue to improve as we go in the near future, based on our new revenue resources. After that it's tough. And the former CFO has something to say.

So we don’t -- we also, we don’t think we have -- we don’t think we are going to run into cash issues and we also think that the 2014 revenue will be higher than 2013 revenue in likelihood and it's just a question, and as Frank said, it's a question of trying to pin it down. And our results will improve. You will see some, when we do the -- when you get through the quarter, you still see some interesting overhead changes. You know we have done some good things to normalize to the extent we could some of our spending. And I am always torn. I go back and forth between -- we got three things we got to really focus on. One is, one supports the other two, which is profitability growth. So the better -- if we can find businesses that have better profitability, it takes fewer of those dollars to move us over the hub. So that’s important. The next one in the near term is the, kind of the lifeboat analogy, we have to be able to support ourselves and get cash flow positive just because we have to. You can't exist any other way over a period of time. So one that goes over the two of that is, really we are all being charged with having a much deeper trajectory than we have had in the past. Kevin Cureton is on board with the absolute goal of his compensation being dictated by stock price. I mean that’s why he is here. That’s really why I am here, that’s why all of us are here. And internally, we talk about it all the time. It's more of a, it’s a drive. And we know that’s about, you have to get things at cash flow positive point to be able to be there to be there, if you will, but you also have to get a trajectory otherwise nobody appreciates the thing we are doing. I mean I am not thrilled with telling you all, see our revenue was about flat but we picked up a million in new revenue and we just lost a million in old revenue. That’s not the way to build a company. It's exciting because these are new areas and these are areas that we think are robust and have legs, whereas the CMP business, as Jim mentioned earlier, that business peaked a few years and it's been dying a slow death overtime because our partner there just wasn’t developing it. And we realized we have to be right at that interface with the customer to make things happen. So I like where we are at. This is going to be a good year with improved results. Where we wind up at the end of the year, I don’t know. I would like to think that if we don’t hit it, we will hit it in reporting periods for the year, but even that is tough. Because we are jacked [ph] between working capital swings and other things. You know this is a -- we have got great leverage on the upside and we are also, at this point just a small player and you are chasing nickels around to make some of these things. As I mentioned earlier, you know a couple of shipments shipped and you have what appears to be a bad year, we can also have what appear to be a great year and then have a rough first quarter of 2015 as well. So it depends how things go. But I am optimistic, I am here for that value. I am not here to grow at a GDP level and I don’t think anybody is. I mean it's something that we just drive down. We are having a company-wide meeting tomorrow. We have these meetings quarterly to talk about results, but really talk about vision going forward. And it's critical that everybody at this company looks at this company as if this can be their job at this $20-$30-$50 million company at some point. We know what we are doing. It's just we haven't hit it year-end because materials this fall [ph], cost to market. And I believe that. I continue to believe that and I realize from a shareholders perspective that's tough, because you have heard it a lot of times in a lot of different ways. I would say we are different company today. I would say we should, by the time we get, if not by the time we close Q3 but the time we close Q3, we should be talking about some growth that we could talk about in a policy area that will be indicative of us understanding how to build this business. I already think we know how to do it but I realize, as is I said, results matter. And all of you look at your ticker everyday and wonder, gee, why isn't my stock moving, why isn't anybody more acceptive of this company and it's my job to get people more interested and the way to do that is with results and I think we are going to do it.

Gentlemen, I absolutely appreciate your candor on this. Just one last follow up question then. Breakeven should be not the bottom line to focus on. Where do you think at least on a quarter by quarter basis, shareholders might see a trajectory that would give them some confidence, or build confidence? Would it be top line or would it be margin?

I would say it's really new business announcement, that sort of discussion. I mean, yes, top line -- we have been managing our margins. You saw last year margin went up by 1%. We have been managing that, I think, well. We pursue areas where we bring a lot of value which is strong in that area as well. And then ultimately you are going to look at top line. But I would say the most immediate goes to say, hey, we just contract x or we got to market y, and that combination I think might be the fastest way. But clearly, it's a revenue flowing through cash kind of game.

Our board of directors, many of whom are on these calls and we are in regular contact. Our very focus, as am I on new business development versus the legacy business. The legacy business is important and fortunately or product is very strong and our partner in BASF is excellent and the business is growing. But ultimately, building that new business in new markets is what's going to get us over the hump. And that’s an area that, we will speak to it more when we can. It's going to show up in the results. Certainly, as we get further into the year, second half of the year, we should see more of that. But when I get in front of my other constituencies outside of our investor community and we talk about successes and failures and how things should go, the quality of the revenue is very important, not just the quantity of the revenue. So the profitability is important but also that new revenue, that new business, and that’s really what we focused on, it's what's going to drive this company over the hump and into being an exciting company. And that’s the stuff that we are really keenly focused on and that’s the stuff you should focus on, although I recognize your frustration because we can't share all the details with you. Part of that is just a competitive thing and the customers don’t want you talking about them. I mean the guy that just bought $30,000 worth of that stuff might become a $200,000 customer doesn’t want his competitors to know that. So we have to figure out creative ways to share that as we go. But I want to share real things with our shareholder base not ideas and thoughts. And I am an optimistic guy and it's just how I am and that’s how you have to be in this business. But I think we will have more concrete things to share as the year goes on.

Thank you, gentlemen and I appreciate your candor.

Thank you. (Operator Instructions) I am showing we have a question from John Gay of The Quiet Investor. You may begin. John Gay - The Quiet Investor: I had questions [indiscernible] but in dealing with the various materials with your tenant in Nanophase particle. Are you [indiscernible], you did not see materials where you have had [indiscernible] for say BASF or your going [ph] continues that might had surprising results in the battery area. Such as maybe lithium or some other material that seems far out from our sort of stuck at the hair.

That’s a good question, John. And I am glad you asked that because that probably means we are not communicating as well as we should. The BASF business is strictly based on zinc oxide. The polishing is based on cerium oxide and aluminum oxide. Now when we talk about the polishing businesses there, what we bring to the table in addition to a series of particles of different sizes is we sell, that material is all the way down 30-nanometer, 40-nanometers up 700-800 nanometer material. But the application expertise, how to get it dispersed, how to keep it dispersed and make it function well in a polishing application, is part of our value. When you look at the energy applications, those materials are atypical materials. One of them is a, we can't disclose the details, but it's a new particle that we haven't marketed or manufactured in the past but we spent some time developing that. The other one is an area where we believe we have found ways to change something to make it more effective. So we are preparing -- when I say new particle, by the way, it's new to us. It's now a new, it isn't a new feature in physics or chemistry where the whole world has not seen it. But the way we make things, and this is -- I always, when we have these calls, I always wonder if I should do a primer and a high level which we haven't done so far. If you don’t know, we manufacture almost all of our powder or particles on a plasma basis. So we are either a taking a piece of metal or a metal oxide that’s large, and we are vaporizing it in an arc using heat. We are bombarding it with gas, reactive gas, to control the size and surface chemistry. And then after that we collect it. This is all proprietary. Once we collect it, we frequently code it or we put it into something having created the surface while we manufactured it to interact well with that material. So the challenges are of course that we could more than we could ever market, so we have to narrow what we are doing and focus, focus, focus, which we are doing. The point you made, we probably have, what I would say, we have got a three workforce materials, we have developed new versions of those and we have also developed lots of wet chemistry around them that doesn’t exist in the marketplace we believe. Then we have got a few materials that we have sold here and there over the years that we are fighting to try to find new applications for or maybe ways we can look at them differently. And then this year, we added a brand new tool for the tool box with this new material for one of the energy applications. So we absolutely don’t rely on existing technology and part of it is just the culture here. Our R&D folks, we devote a certain degree of time -- I have always said that we do more D than R. We do very little fundamental research. On the other hand, we always devote a certain degree of time looking at materials, new ways to go at it. Other peoples materials that maybe they can't capitalize on because they don’t know what we now. For our next, whatever the next thing is, the next breakout thing or the next big thing to go after. So it's a broader approach. And I think having Kevin here on the sales and business development side, having gone through sale of some brand technologies and understanding it, that experience, not only is it deep but it's also instructive to our technical team. Because they are being challenged on a regular basis by our business development people saying, hey, Kevin is a pretty solid chemical engineer in addition to having an MBA and he has been in the business for 30 years and probably 20 of them were in sales and 10 of them were in engineering. And I think that as a big thought [ph] and it kind of cross-pollinates our technical group. We have also, if you follow the past history of the company over the last year or two, Pat Murray and a lot of our other technical people have done a lot of our reach to various local universities, visiting universities. I am not a big fan of doing work with universities with the intention of it begin commercial. I am a fan of not having to do every single bit of work internally. And so we have had a good amount of cross pollination that has been additive. And it's just a segue, I hate using all those buzz terms but, we have done a lot of good things and think we are going to see some of them bear fruit. And as I said, I will be disappointed if at least one of those energy applications, if not both, don’t have commercial volume next year. And both of those are right in the wheelhouse of what I am talking about. New materials that we haven't been marketing to that in the past or branded materials. So time will tell but I am optimistic. John Gay - The Quiet Investor: The reason I asked the question, the big impediment to using batteries for electric cars and so on is due to the size and weight of the battery and the production [ph] to get out of it. And if there was some material, maybe some prosaic material that contains the characteristics served by Nanophase technology, then we could thereby reduce by 50% or more, the size and weight of batteries, I think [indiscernible] on the world. And I just wanted to [indiscernible] those [indiscernible], as [indiscernible] to existing materials that have taken place.

We are not there yet, John. And honestly, if you knew me, you would know I would love to own the world. And I practically have a mini me hidden in office just waiting. But I think we could bring some good changes to that market. I think contrary to what, we all look at this stuff and it seems a very modern. The market --- those industries bite and scrap for every bit of technical advantage. So we are not currently working in the field that I know of at least, the dealing with rechargeable batteries for automobiles. Not that we wouldn’t, but we aren't right now. In some of these cases, if you could bring a 5% to a 10% advantage to one of these companies, it's huge. Because no matter how you slice to them, and I don’t want to share all of our market data because it's competitive data that is to our advantage, but if you look at whether it's coin batteries or old fashioned, the Eveready type of battery. If you are looking at alkaline batteries, there is always different batteries, they are all relatively in concentrated where people are fighting over a few percentage of market share or few percentage of performance. And we think we could probably out do what their standard performance advantages are and that’s a nice place for us to be. I would love to solve the car issue though. That’s something that, who know, maybe one day -- we are almost, we are still spending most of our time dealing with metal oxides. That’s where our technology and our expertise leans towards. And we haven't been a player with lithium generally. Not to say we won't ever, but part of it, what I told our people here because we have these -- as you might imagine, we have these discussions a lot. We have our companywide meeting tomorrow. We encourage people to throw around idea and everybody, we have a very open door type company. And my thought is, let's get some fix up on the first one. We already know what the second one in the areas is going to be, let's have some success there. If this starts to grow into something that will get some critical mass, than I am all for expanding the work we do in the industry. Because you gain so much. Because once you are in there, similar to the polishing business, once you are in with a series of companies, you are starting to understand it. You also start to understand adjacent technologies pretty well because you see where everybody is going after them. And we are at the disadvantage of being, even though we are hardly a new company, we are new in a lot of these industries and we are at the disadvantage of not having that deep knowledge. So we try hard to make sure we miss something locking in, which is why we do a lot of this testing on the front end. But we are still wearing in. Every customer is going to make us a better company.

Thank you. I am showing no further questions at this time. I will like to turn the conference back over to Mr. Jankowski for closing remarks.

Thanks, Shannon. Everybody, we appreciate your continued support. We also appreciate the many new investors that have been getting involved with Nanophase. As we clear commercial hurdles, word toward our ultimate goals of becoming an exciting company with significant growth and profitability, we are happy you are all here with us. Thanks again for joining us today. I hope you all have a good today and stay as warm as you can.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.