Jess Jankowski – President and Chief Executive Officer Frank Cesario – Chief Financial Officer

Good day, ladies and gentlemen, and welcome to the Nanophase Fourth Quarter 2016 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] As a reminder, this call will be recorded. The words expect, anticipate, 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 provision of the Private Securities Litigation Reform Act of 1995. These statements reflect the Company’s current beliefs, and a number of important factors 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 the customer to cancel a purchase order or a supply agreement, demand for or acceptance of the Company’s nanocrystalline materials, changes in development and distribution relationships, the impact of competitive products and technologies, possible disruption in commercial activities occasioned by terrorist activities 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 introduce your host for today’s conference Mr. Jess Jankowski, President and CEO. You may begin.

Thank you, Catherine, you nailed it. Good morning to everybody, I appreciate every one being here, and those listening after the fact online. We’re happy that you’re able to join us to discuss our fourth quarter 2016 financial results and business updates. Frank Cesario, our CFO, has joined me again today. 2016 was a year of first for Nanophase. In a 11 month of period of positive adjusted EBITDA was the first and the second quarter of 2016 was our first quarter of GAAP profitability in company history. We forms the lessons our new and first ever subsidiary to capitalize on our C3 patents. We completed the development of our first three products and our fully formulated line in building consumer claims another first outside testing in verification data has exceeded our expectations. And we began sampling our fully formulated finished products that several shows and with several more target white label customers. During this call, will be giving an update on our strategic approach to new business development, our existing business and of course, 2016 results. Our 2016 total revenue was up about a $0.5 million from 2015. The increase was driven by strength from our personal care active ingredients business, offset by a small decline in our coatings business, and a decline in business from our diversified products portfolio that we believe is timing related. We also did an excellent job of managing cash and expenses, while investing in the development of our suite of fully formulated skin care products. As we noted in the press release, our added investment and building this product line was the only thing that stood between us and another improvement in the bottom line to go along with the top line. We think it’s a worthy investment but we didn’t make it lightly. Let’s have Frank, provide a quick overview of financial results. Then I’ll follow with more discussion of the execution of our strategy and our business development. Frank?

Thanks Jess. Good morning everyone, I’m Frank Cesario, CFO of Nanophase. And I’m pleased to be with you all today. Before I get into the numbers, please remember that all financial information is stated in approximate terms. Our fourth quarter revenue is $2.4 million in 2016 compared to $2.3 million in 2015. As Jess mentioned, our spending and launching our new suite of products was up, which increased the net loss from $0.3 million or $0.01per share in 2015 to $0.7 million or $0.02 per share in 2016. For the year 2016, our revenue increased to $2.8 million up from – revenue increased to $10.8 million up from $10.3 million in 2015. We’ve ran a positive adjusted EBITDA are essentially cash flow from operations through November 2016 on a year-to-date basis. With investment, our new product lines resulting in a full year negative value that we disclosed in the press release. Our bottom line of $1.3 million loss or $0.04 per share was similar to our 2015 loss of $1.2 million or $0.04 per share. Despite the added investment in product rollout. We ended 2016 with about $1.8 million in cash and cash equivalents and we have no debt. Jess?

Thanks Frank. As we expected walking into last year 2016 revenue exceeded 2015. We except this trend to accelerate in 2017. Well I don’t expect significant revenue from the white label personal care business this year. I do expect to see some well identified incredible scale up revenue coming in during the last half of 2017 a harbinger of 2018 commercial product launches. At high level, our forward business development strategy hinges on two broad areas, personal care, which is mainly skin care in our case, and solar control. Personal care has a lot more moving parts. I’ll all start with a brief overview. We understand this market better than any other, having sold into it for the better portion of 20 years, but often with our noses against the glass. Wishing we had more influence on the final formulated product. Now we see a competitive advantage for our products that we believe can generate significant real value. Generally, consumers are taking a more holistic view of their skin care time together health, wellness, diet and lifestyles as they choose products. Things that are perceived as all natural or naturally derived, as well as products with fewer and fewer ingredients are gaining traction. Prior to our C3 technology, we enjoyed advantages due to our products being minerals based. Now we expect to enjoy even more advantages to the application of C3 with the potential to open up new markets for our products. Key industry sources agree that, inorganics or mineral space, skincare products are expected to become an outsized part of the markets growth over the coming years. It’s worth mentioning that much of our existing ingredient volume and almost all of our plan C3 base growth will be used in the skin care market versus the sun care market. Traditionally, sun care was geared towards sunscreens worn at the beach. As these markets mature and consumers become more aware of the damage caused by the sun, there has been a shift to including sun protection in skin care products. These were frequently referred to generically as daily wear products in the past, but the market for what we offer is broadening beyond that definition. The good news for us is that the skin care market has been growing and is expected to continue to grow at a rate 50% higher than the sun care market. As many of you have heard me say, we are in a good spot. Our personal care products focus is composed of three types of products, Zinc Oxide and Titanium Dioxide or TiO2 in powder form, for our actives business. Zinc Oxide and TiO2 dispersions, that’s in a liquid format essentially our intermediates business. And the area where we are most focused in terms of resources and development, our fully formulated skin care products to be sold to brands on a white label basis. In our powders business or in the industry what we referred to as our actives business we continue to sell a significant amount of Zinc Oxide. In these cases, downstream customers are usually buying our products than incorporating them into some form of dispersions than incorporating their dispersions into a fully formulated finished product. This active ingredient volume has been the mainstay of our business, but has its limitations, cheap of which is the lack of customer and user intimacy experience by Nanophase. We usually sell through a market partner who themselves to downstream manufacturers of intermediates and our formulated skin care products. In this context, dispersions refer to minerals based actives, in a liquid format, designed to enable easier inclusion into finished products. This is also how synthetically derived actives are often delivered. We believe that a general lack of industry expertise in this area leads to another major growth limitation for us, poor static performance in final formulation. This can be a result of poorly made dispersions after the actives have left Nanophase. We saw this is an opportunity, as we saw to expand our personal care business. This is why dispersions became our next target. Due to nano and non-nano minerals in near transparent products becoming more popular with consumers in recent years, we’ve seen that many companies in the personal care markets haven’t yet developed formulating and processing capabilities from minerals, or at least have not yet developed them to the extent that they have with chemical UV absorbers, which many have been working with almost exclusively over decades. It became apparent to us that the lack of high quality, easy formulating dispersions of mineral or inorganic sunscreen actives for the personal care markets was limiting our growth. So how to sell more powders if the market was saturated or unsatisfied with the mineral based offerings, that’s the question. Given that we’ve been working on industrial dispersion since early 2000s, we felt that we were in a good position to capitalize on trends toward mineral UV absorbers and skincare. Dispersions represent our 2nd broad category of personal care products. It really wasn’t until the advent and then a more complete development of our new C3 coating technology over the past few years that we were able to see a clear path forward. In April of 2016, we officially launch two TiO2 base dispersions. As intermediate, dispersions allow us to move further up the value chain, while to a degree increasing our understanding of our customers and the markets they serve. This is where we expect some of the novel properties within in our C3 technology to bring new advantages to the personal care market. C3 enables the following consumer claims, which we can support with external as well as internal validation. Our C3 technology enables superior reduction in UV induced free radical formulation, it clinches reactive oxygen species that leads to the appearance of UV-induced premature aging, it offers balanced UV protection through enhanced performance versus other mineral products. And finally it delivers a light and soaky texture leaving the skin looking soft and feeling natural. This part of our personal care business, while offering a smaller group of target customers and a company by necessarily longer lead times may reflect our highest growth in product sales volume over the next few years. We’re still waiting broader adoption of Tio2 dispersions, but except to sell low to mid six figure quantities in the near-term. Our dispersions business, while we expected to generate revenue on its own also represents a necessary step in our evolution. Finally fully formulated white label products are our next type of product within the personal care area. As many of you know, we’ve been investing in our formulating capability at Nanophase beginning in 2015 and 2016 coinciding with the advent of our C3 technology. We found that it was difficult to sell our intermediates to new customers without showing down the specific benefits that C3 technology could bring to their final products. We’ve also developed a stronger data and consumer claim support capability, another key strength in positioning our technology to our customers. Initially, to started with us creating a group of model formulation designed to give our dispersions buyers an idea of how their consumer products might perform with our C3 technology enabling them. This was a big step for Nanophase. And it represented a major shift in the way we approach to personal care. Now, in addition to building our market knowledge in terms of consumer wants a need, we’re working more closely inside the finished product development cycle to better understand ways to improve them. As we continue to evaluate the available market, the development of fully formulated white label finished products with another stage in our natural progression. In building our formulations capability, building consumer claim test report – support and working to optimize performance in finished products in the development of our dispersions line, we created a roadmap for ourselves to develop our own finished products. We felt that there was no better time for us to capitalize on this. C3 enable finished products open up broad based applications both in terms of market and in terms of bringing multiple features to our product solutions. This is part of the growing differentiation between sun care and skin care that I mentioned. Our target customers for our white label products are generally skin care product marketing companies or brands. By the way, when we use term white label products, this refers to an approved finished product that incorporates their brands, our marketing companies desired claims and performance. Nanophase will complete the entire development and production cycle for a given brand, delivering a product in their desired packaging. The customer or brand will then be responsible for marketing, promoting and selling the product. White label products differ from the private label products that most of you will be familiar with. The key take away is the white label products offer differentiation from products that already in the market, allowing brands to earn premium. This is where we want to play. Most private label products are typically designed to mimic other products at a lower price point. White labeling is a common practice in personal care and one with which Nanophase has a good deal of applicable internal experience. We’re working in the early to middle stages in terms of building our full line here. But, development of white label products not only advances our several steps along the value chain, but also enhances our degree of visibility and control over our business development. In terms of enhancing our control, white label products, once we’re fully up and running, we’ll enjoyed faster times to market than other Nanophase products in the personal care space. The reason, Nanophase is expanding so much time and resources in developing this technology is that, I believe and we believe that C3 is the single most exciting technology that Nanophase has developed in years. Given our knowledge of various personal care markets, along with the historical success and broad acceptance of materials in some of those markets, we can see our personal care business in total having the potential to double over the next four to five years. There are still many things to be developed and perfected, but we feel good about our opportunities in personal care. This is a great space for us to be in, we have a solid value proposition and we can be a differentiator, which matters most to our customers. In terms of our energy business, we’ve now developed and sold several solutions in the solar control area. This refers to applications which improve energy conservation, think of the window films used on vehicles and buildings. It maybe easier, if you to think of this business as using our technology to keep heat from the outside – on the outside and keeping things cooler on the inside. The solar control business is still unfolding as we are working with several customers and several product formats. We’ve had sales to two different companies both of which are still in the trial stage. We expect to see growing sales volume this year, which will represent scale up and our test marketing with more significant volumes in 2018. Outside of personal care and solar control, we still have other new opportunities with potential for profitable volume and growth. Some of these in commercialize in 2017, but we have less control here. These opportunities represent irons in the fire, some of which will materialize in the form of good new business for Nanophase. While we are limiting our strategic new business development activities to the two key markets we’ve been discussing. We’re continuing to serve other markets with unique products that perform well and generate nice margins. In this respect, for these markets were functioning much more like a typical seller of high end specialty products than we are as a new product developer. We have growth opportunities within our existing customer portfolio as well. If there are more or less depends on the development work that we don’t control. I think of serving our existing volume businesses and markets has been critical, but less technology product and business development centered than I do personal care and solar control. We have more upside potential with these two markets and a clear vision of how to get there, which drives our willingness to continue to invest in them. Going forward, I’m confident that we’ll continue to set new financial performance milestones. Revenue growth, cash generation and new business growth are our top priorities. Although the largest group of our investors either listen to the webcast or review the transcript after the live call. We’d like to invite those participating today’s call to ask any questions you may have or to share your comments. Catherine, would you please begin the Q&A session. Q -:

[Operator Instructions] And I’m showing now questions at this time. I would like to turn the call back to Mr. Jess Jankowski for any closing remarks.

Okay, thank you Catherine. It’s good to have prepared such a complete script that every question has been answered in advance. Seriously though, thank you for those on the call, thanks to all people listening live and on the web. We have a good amount of callers I’d like to listen and typically don’t comment. I’ll tell you that we are well positioned for new technology driven growth in 2017. And I look forward to my next opportunity to discuss our business with you I hope. All of you enjoy the rest of your day. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.