Jess Jankowski - President and CEO

James Liberman - Wells Fargo Advisors Rand Kay - RKA

Good day, ladies and gentlemen, and welcome to the Nanophase Technologies Fourth Quarter 2017 Financial Results. [Operator Instructions] As a reminder, today’s conference is being recorded. Before we start, 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 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, demands for and 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 activity and armed conflicts, 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 Mr. Jess Jankowski, President and CEO. Sir, you may begin.

Thank you, Victor. And good morning to everybody. I appreciate everyone being here, and those choosing to listen later online. We’re happy that you were able to join us to discuss our fourth quarter 2017 and record full-year 2017 financial results, along with some exciting business updates. As you may know, Nanophase has hired a new CFO, Jaime Escobar, who will begin his employment on Monday. We’re all excited to have him began what we know will be a productive and successful career at Nanophase. In addition to having a solid financial and accounting skills, Jaime has specific industry experience that will allow him to make an outsized contribution to our growth plan over the next several years. He has a strong background in manufacturing, costing and growth companies that we plan to leverage throughout our business. As we expand our marketing and production of fully formulated finished sun and skincare products through our Solésence subsidiary, his specific experience to this area will be an excellent addition to our company’s skillset. Given the timing of our new CFOs start, I am flying solo on this call. During the call, I’ll be giving an update on strategic approach to new business development particularly within Solésence along with updates on our existing business and of course 2017 results. Our 2017 total revenue was $12.5 million, a new all-time record. It was up by 16% or about $1.7 million from 2016. The increase was driven by strength in our coatings business and some growth in our personal care active ingredients business. Throughout 2017 we continue to invest in product development for our Solésence suite of fully formulated skin care products. This investment partially reduced their earnings improvement but also laid the groundwork for greater topline and bottom-line growth in 2018 and forward. Let me give a quick overview of financial results, then I’ll follow with more discussion of our strategy, its execution and business development. Please remember that all financial information is stated in approximate terms. Our fourth quarter revenue was $2.6 million in 2017 compared to $2.4 million in 2016. We had a reduction in our net loss quarter-over-quarter which decreased the net loss to $200,000 in 2017 compared to $700,000 in the prior-year. This improvement was a function of higher revenue volume contributing more margin coupled with a temporary reduction in R&D and SG&A expenses. For the year 2017 revenue increased to $12.5 million achieving a new Nanophase record up from $10.8 million in 2016. Our full year adjusted EBITDA which is essentially cash flow from operations amounted to a negative $240,000 for the year, an improvement of 350,000 from 2016s number. This remains an excellent indication of our progress going forward. As further evidence of the strength of our year, we achieved this growth while still making significant investments in research and development to build Solésence. We expect this to build a product base to help us achieve even more promising growth in the future. I’ll expand upon this after I finish with the numbers. As reported, we completed an equity transaction in December 2017 selling 2.5 million shares of unregistered stock for $1 million. This reflected a price of $0.40 per share which we viewed as an efficient transaction in terms of total cost and diluted impact. It was also completed in a manner that limited management distraction at this critical time in the growth of our company. After this transaction, we ended 2017 with about $2 million in cash and cash equivalents. It’s worth noting that the overwhelming reason for this funding was to avoid triggering the tech transfer that is embedded within the BASF agreement. Under this agreement, we’re required to maintain a minimum of $1 million in cash at the end of each quarter which is well beyond what is required to run this business. Given our expectation of continued growth, working capital is a bigger issue now than it ever has been which creates trigger risk that today represents strategic risk. Growth is a solution to this issue and we are pursuing it aggressively. Going forward, to get into the rest of the business, we’ll refer to our base business as the advanced material business. Advanced material area is composed of our personal care ingredients business and the material businesses related to coatings, solar control, a diverse group customers by higher value specialties and of course policy business where we have partnered with M&S. Our revenue growth in 2017 was driven by several factors, the leading of which was growth in our coatings business which also resulted in greater customer diversification in 2017 which is a stabilizing factor we like to see. And we expect our advanced materials business to continue to be solid going forward. That said, the time is right for continuing our Personal Care and Solésence push. As we reported previously, our strategy is to streamline our focus toward Personal Care and Solésence products to enable your company that more rapidly grow. In the Personal Care space, the market continues to demand more and better solutions incorporating minerals based sunscreens which is good for our advanced materials business and most importantly our new Solésence subsidiary. As a reminder, Solésence is our wholly owned subsidiary that develops and manufactures fully formulated beauty products for brands using what we refer to as our active stress defense technology. We created advanced to maximize the value of our patented technology. All our formulations will be created using minerals based active ingredients as their backbone which is what the consumers and dermatologist generally wanted for best health benefits but have been limited by many of the existing technologies in the market. To support the growth of our Solésence subsidiary and help our customers more effectively differentiate the products we develop for them. We continue to build externally derived in-vitro, ex-vivo and in-vivo clinical data that support proofs for product features and consumer claims. Some of the key benefits we’ve proven are comprehensive environmental protection including protection against pollution. Full spectrum UV protection and stopping the formation of free radicals which contribute to premature aging such as wrinkle formation and skin discoloration. These claims for Solésence products help the brands provide evidence of anti-aging benefits which continue to be one of the biggest drivers of demand from consumers. The Solésence customers typically sell the products we produce to consumers through specialty retail stores like Sephora or Ulta through professional channels like spas and dermatologist offerings, and on their websites and other online venues. I suggest that any of you who have not been on Solésence -- on our Solésence website in the past few months, view us at www. solesence.com. We continue to update and improve our site includes some videos and an abundance of compelling information. From a topline perspective, in 2017 we enjoyed over $50,000 in Solésence related revenue. During 2018 we expect several products produced by Solésence to launch during Q2 and Q3 from both small and midsize brands. While we don’t provide guidance, we can say that the revenue from these Solésence launches will be a meaningful multiple over 2017s. While I am unable to discuss the exact details until after the products are launched, everybody should be able to start seeing these products in the marketplace over the next few months. I’ll be better able to share more with you both on the products and sales volumes over the next few quarterly calls. I believe that Nanophase and Solésence are in the right place at the right time, right now. Although most of our investors listen to the webcast to review the transcript after the live call, I’d like to invite those participating in today’s call to ask any questions you may have or to share your comments. Victor, would you please begin the Q&A session?

[Operator Instructions] And our first question comes from the line of James Liberman from Wells Fargo Advisors. You may begin.

It’s great to see the progress you’re making, greetings. I had a couple of questions, maybe I didn’t hear correctly, but did you say there is actually growth in the coatings business?

Yes, there has been growth in the coatings business. Not sure yet whether it’s permanent structural growth or market growth or which, but it’s been a nice move. The majority of the revenue change between the 2017 and 2016 is due to coatings growth.

I know that you have a partnership or a group that is managing in that business. Do you keep in touch of them to get a sense in -- or are they pretty much on around to see how they can evolve the business in that area?

We actually don’t -- I think you’re thinking of the policing business.

Yes.

For the coatings business, a lot of -- comes through [inaudible] who is experiencing some good growth from what we can see, we have other coatings customers that are also seeing some positives. Some of the things that are timing related. We had a few that also gave back some revenue last year but on balance there was some of these increases and my guess is that there is better or stronger customer acceptance downstream but it’s difficult to know that and those are the areas that we really rely on the customers we’re selling to, to do most of the or all of the marketing and sometimes there is a little more opacity there.

You’re right, I was confusing the two. But are you able to comment on any of the areas of the coatings you’re going into or is that something that you also would rather not discuss at this time?

No, I can’t to an extent. I mean we don’t have -- our issue is that as we’ve pulled back in the business development and product development in the coatings area, we have less of a touch. We always had more distance than that I would have liked just based on the nature of our products being ingredients. So, some of them are architectural coatings, more of them are industrial coating and we believe but we’re not sure that some of them are going into the automotive sector.

Now could you also describe a little bit more about the process by which Solésence has been rolled out. So you already have certain relationships with certain cosmetic companies and that are in the process of coming out with these products is that -- I mean I guess -- I will be going online spending more time looking on online as well. But also I’m trying to understand the process and I guess it’s pretty early stage. And so you’ll know a lot more over the next couple of quarters I’m guessing.

Yes, but it’s not early stage relative to -- I mean our engagement with some of these customers has been over a couple of years now. And so typically -- so we invented the technology, we put it in the formulations we talk to people, we find out what they wanted in their products and if you recall the -- we were talking about the white label business and the contract manufacturing piece where we basically come up with the solution tailor it to what a company wants from their marketing group’s perspective. And then we make the product, put into their packaging, put their labeling and then they use their channels to sell it. So we are expecting a launch -- a couple of launches in Q2 that are actually -- already at the point where I just can’t disclose any details really, but at the point where we’ve got packaging we’re starting to produce the stuff. We already produced a lot of bulk and we expect to be shipping those things in early Q2. So it’s at point where you and our investor base and anybody will be able to start seeing products with -- enabled by Solésence technology many of which -- some of which are actually completed formulated designed by us which is a big step forward in a very much different from our typical materials business. The time-to-market if you go back to the longest lead stuff we make it’s typically would be the architectural coatings which could be four years or more depending on. We had people doing couple of years of real-time free start testing. Here on the white label side which is products that we’ve already designed and we basically have on the shelves that might require a little bit of tweaking. It could be six months on the longer side, it could be a couple of years if we’re making a custom product for somebody, but we have several of these in the pipeline. And I expect to be able to talk about more of them as the year goes on, but I’m already looking at we’re going to have revenue in Q2 that’s significant related to our Solésence launches.

So that’s rather interesting and I’m trying to also get a sense of how you envision Solésence of rolling out in terms of I guess starting with some smaller for lack of better word boutique type cosmetic companies who have a following and are coming out with a new line of moisturizers/sunscreens. Do you see that staying with smaller companies or also ultimately being adopted by some of the larger companies?

Well I think it depends on your definition of the space first of all because the large companies, when we were strictly in the ingredients business I would think of large company as P&G or somebody like that. In this case we’re talking about companies that are large as in 100s of million billion dollar companies potentially that are selling into a much higher level of prestige line of cosmetic. So things you would it for Ulta or even there are series of the companies that we are approaching that are selling strictly online that have seen some phenomenal growth and are selling very high value products. So, these won’t be strictly small company launches. One of them that’s coming up is for what I would say is more of a [bid-size] company but even then this is going to be -- for us this is easily going to be six figure volume and potentially more and as we expand how it is -- I mean one of the things we’ve changed drastically relative to our approach to business development is building in the formulations capability because these customers generally will have launch one or two products, you launch a few more, many of them don’t discontinue the old products they just continue to add new products. And we are set up now to be able to continue to develop products and as we build that reputation and that trust level with these customers and through these customers others, I think it’s going to move faster and faster now. I’m way beyond the stage here that I’m going to overpromise anything just because it’s difficult as you know -- we have pretty aggressive internal growth plans over the next several years. And I think the company is going to continue to grow Solésence is going to be the driver of a lot of it. I do think the base business, events materials parts will grow. But that growing -- a chunk of that is going to be the personal care ingredient piece in that business because mineral-based sunscreens. Still I don’t think have anywhere near seen their peak in terms of -- I mean the Solésence business is going after the high-end of the market. There still at middle end of the market and a lower end of the market that haven’t really been exposed yet to all of the benefits of minerals. And the regulatory side a lot of things are going in the right direction. I just think we’re really in a great spot for this right now Jim.

Interesting you should say that because I just had a conversation with my dermatologist who have very prestigious group in the Boston area. And they had given me a sunscreen to try out a light sunscreen made by La Roche and I happen to look at the ingredients in the back and they were oxy hex’s and oxy benz type chemicals. And I had to called them back and say that you know there’s a great growing evidence that these can affect the hormone balance in the body. And so a lot of people don’t even realize even dermatologist don’t feel those so I really feel like you almost -- you are in a great spot and also there is a great deal of education is going to be happening over the next couple of years I think in the industry?

I think you’re right. Some of the channels are through dermatologist offices and spas that actually have medical components to them. That is going to help -- I will say though that if you go to the anti-aging conferences and various conferences that discuss these things, I think the bulk of dermatologist would prefer that people use mineral-based sunscreens. The issue is starkly has been that they have lightning or ghosting affect. So better use something to nothing and if you won’t use the minerals, use the organics is what they’ll tell you, but our technology and our expertise in the years of doing this have gotten us to the point where we could be competitive with materials that are organic based without the minerals in them. And that means essentially that the difference between the two can become what you think is healthy or not healthy to put on your body. Additionally, the Solésence technology which sometimes I feel bad you and I are talking here Jim, and you’ve been here for so long you understand the technical basis of this company better than many. What we bring to the table allows the particles that are coded to remain stable in sun, water, a lot of different areas that typical mineral can’t remain stable and typical organics will not last as long as our products. So we’re bringing some things to the table that as the market gets educated it should continue to grow and grow. So I’m pretty excited about it.

I have to say that my enthusiasm is building dramatically. Thank you very much for your work.

And our next question comes from line of [Ron Prater]. You may begin.

When your Solésence customers launch new products, will you able to make announcements as well concerning your participation?

It really depends, sometimes we will and sometimes it will be more by association. We’ve got some customers lined up that have agreed to put our -- either our patent numbers or our company names on their products as an endorsement at which time it will filter out. It just, the thing that’s hard and I know where you’re coming from is that things that are good for -- potentially good for our investors in the near-term aren’t always good for the company’s we serve and that’s always they balance that. I mentioned even our largest customer I mentioned them by name today because we talked about the -- we talked about the agreement. They would prefer we never use their name. It’s a marketing and sales approach that we’re trying to always, I realize that our investor are starving for information and really want to see more happening and want to be excited about it and believe me it’s important to us as well and to the extent that we can get some publicity around it and get people to know more about our material we certainly if we can. And some of the customers have been open -- some are maybe and some have been closed to that.

A year so ago you announced relationship with Color Science, can you say anything about that how its developing are they still involved. Can you say anymore?

We are still involved regularly with them. It’s going along much as we expected. We have very good relationships and a lot of mutual respect between the companies. And we expect to be doing things with them this year that you’ll be able to hear about. Beyond that it’s hard to go into too much detail and part of this is -- as you know in the marketing side everybody wants surprises and it’s a doubled their start. They want surprises on the one hand and they don’t want their competition knowing who they are using to get some of this. We all have our axe to grind here and so we’re trying to balance without -- but you will definitely be hearing more about that later this year.

How about Ester Solutions how is that developing if at all?

Ester, we had some decent volume, we put that -- we consider that as part of our advance material’s business and because it’s more of an ingredient it’s a formulated ingredient but it’s not a product. We put our materials into one of their materials and then they sell it. We had some growth last year that was pretty good, not enough to hit that SEC reporting standard which is what -- since the customers don’t want us talking about it unless we hit 10% of a quarter it’s hard to disclose. But we have seen some nice growth there. We are evaluating where we think that’s going to go going forward because -- it really is a different kind of business then the Solésence business and that it’s higher volume, lower margins but more volume and over time it’s something we have to continue to evaluate. They’re looking at additional products, and we are basically one of the things that I end up doing more than anything else here is being a gatekeeper for resources and where we expand the bulk of our resources in terms of what has the biggest bank for the buck. And I don’t have a specific thought about that company right at the second, but it’s always -- we’re in the middle of getting some launches off the ground for Q2 and it’s kind of all hands on deck. We get it into a little bit more of a rhythm that’s going to become a lot easier for us to do a little more balancing. We got the resources necessary which is building that internal experience kind of the muscle memory of packaging and getting things rolling and getting organization used to doing something that isn’t what we’ve done in the past. But it’s going well so far so good and again we’re excited.

How about M&S technologies, is that relationship and particular orders developing as you had expected?

It’s going fine, I think the -- it’s too soon to tell we had -- as we signed the agreement we had PO’s and volume going into this year. And those certainly are happening as we expected. They are developing capabilities to do some production on a licensing basis which is part of the contract which they are getting up to speed. I think the jury is out probably to see if there is growth there. I mean our goals -- in fact the Europe on and maybe everybody else that’s listening or will be listening, the goal there is to give us the opportunity to do some market and product development. They have good capabilities in the product development side and they have a worldwide marketing touch and these are generally smaller customers that although the margins are good, it’s not something that a company like Nanophase can put a lot of resources in because their growth. It doesn’t fit our business model the growth just isn’t there. I think is going to be a while before we could opine on whether it’s a stunning success. It certainly working along the lines of what I expected at this point. I just think it will be a little too soon to tell how that -- how we fall into a rhythm there.

Can you talk about the Solésence sales pipeline a little bit, how many customers are actively sampling standard formulations right now. How many are talking to you about the development of custom products. What can you tell me about the sales pipeline?

I don’t want to get too much of that. I would say that we definitely have a series of customers more than a handful that are probably between 10 to 20 that are in process either evaluating products where we are iterating with them. We also have a few that are looking at products we have on the shelf. Now that said, what we have decided to do was couple of the custom products had more legs on the front end. So our focus has been on not making -- I don’t want to ever use the term generic relative to our technology because it’s far from that. But not making basic products or in the industry they often talk to as a chassis for products. We are going after both simultaneously with greater importance on the ones that are closer to launching. So we do have a series of it. We have probably 80% of our R&D organization function focused on Solésence almost strictly. We have more than half of our engineering group focused on it. Our sales group is largely focused on it. So it’s a big deal and without disclosing too much that I shouldn’t I just would say that we expect. We are expecting not only growth this year, but growth in the ensuing years certainly more volume than last year and we think it’s going to grow to be significant over the next few years.

Who do you regard as your principle competitors in the white label cosmetics space?

I don’t have a good handle on, what I should or shouldn’t share there. There are companies like Solésence out there. And they range from like if you go to show it’s a big show it will be here in Las Vegas. There is a big one in Europe, where the shows they range from strictly a polling contract manufacturer who takes a recipe and makes it through somebody and puts in their bottle. Two companies much more like us that are adding technology that is unique or does something that typical materials don’t. We compete with I mean there is more than and I strike 10 of them that are out there or more. Some are very large, very few are -- I mean there is only few companies that are probably in the billion range most of them are more I would say in the $20 billion to $100 billion range. Lot of opportunity there for everybody though and I think the direction that we have chosen to go comports very well with what the market is doing. If we go to -- we started -- Nanophase started down the path based on some what we believe to be superior patented technology and some expertise. And a lot of the people who had very little technology realized that the industry is moving towards wanting what they refer to as a turnkey solution. Where if I’m marketer and I have a customer base and I understand what the market needs, I really don’t want to have to produce it and I don’t even want to have innovate in it other than innovate by the concept and have someone else do the math for me technically and that’s we’re at.

One final question, how is Q1 developing at this point?

Good, no surprises there. I’m not -- I think you know -- in terms of volume year-over-year I expect us to do more volume in 2018 than we did in 2017. Quarter-to-quarter is tough because we’re still dependent -- one of the nice things about the growth in the coatings area was that, we reduced some dependency on our largest customers but we’re still dependent on a few larger customers that have large orders. And so rather than say how I think you want is fine, I’m not looking at any -- at this point we’re not looking at anything in Q1 on the revenue side thinking we got a problem. I will say though that year-on-year we’re going to see growth, quarter-to-quarter is always tough because one shipment for many of our customers can be anywhere from say 150 to $0.5 million, a couple of shipments and sometimes they’ll shift from the last three days of a quarter to the first week of the following quarter and all of a sudden the quarter looks bad but the timing actually was what happened.

So the sunscreen ingredient materials orders for the quarter look okay?

They do and I will say though that when I say that that is a very volatile number that on a month-to-month basis on an annual basis that volume is pretty regular growing to some degree. Continuing to grow incremental or incremental plus on a regular basis sitting here inside the building it’s just everybody does just in time manufacturing every time there is a blip somewhere there is a whipsaw back and forth. And you might recall several years ago we made an announcement that we thought we’re going to fall short then it came right back two months later and that just. There is a lack of -- this is not a case and we have a lack of transparency I think it’s a lack of visibility in the market. So another reason why we like this Solésence businesses or products because you’re actually there with the person that’s going to be selling it versus a few people removed from the actual manufacturer then selling.

One final comment, I haven’t looked at the Solésence’s website and I think it’s a big improvement over the earlier version I hope that your customers are going to find it much more useful and helpful. Okay, thanks very much.

[Operator Instructions] Our next question comes from the line of Rand Kay from RKA. You may begin.

Couple of questions. For the sake of argument, a base product versus a finished product. Is Solésence a finished product? In other words, I guess here is where my question is going, do you -- I know your customers use Solésence okay in their mix. Are you using Solésence and formulating your own products for the marketplace or is Solésence kind of topic your food chain. And then you let your customers work on the batches and the bruise?

Some of those things are little conflated relative to -- let me just put it differently. What we’re doing is, we are making a finished product enabled by the Solésence technology, and as well as our formulations capability our regulatory manufacturing backbone and all that and then we are designing that product, we are packing that product and like indicated it would be Kay Cosmetics is selling something enabled by Solésence. So we are taking it all the way to the point where we are giving it to -- we refer to those customers generally as brands and that brand is going to take that product and sell it along with its other suite of products. They are not ingredient comparatively. The rest of our business if you look at personal care which is the closest -- which is the best comparison I think you got the BSF business where you’ve got coated and uncoated minerals then you’ve also got like with Ester you’ve got coated particles going into fluids that are being dispersed we refer to that as dispersion which is essentially an intermediate product. Then what we’re doing with Solésence is a couple steps beyond that. First, we we’re manufacturing the bulk finished product which is those three things line up easy than our food chain but then we’re taking that bulk product and we’re going to the process of either packaging it or having it packaged and having it shipped out on pallet or whatever format the customer wants. We are also -- the other big difference between Solésence and intermediates or active ingredient say -- that we are designing those products. We are not -- somebody isn’t saying, here is our formula put this is in a daily care item or a body care, body lotion, we’re saying what you need we’ll bring what we have to the table will add the features that you like in your products and that can run from everything from some customers like, everything to feel like it’s a gel, some customers want it to feel dry, some customers like a certain fragrance. It just depends. So we are -- the only thing we’re not doing with Solésence -- with the Solésence, the end products are actually selling it under our own label and building the requisite supply chain and the sales organization to do that. I wouldn’t conclude...

That was my question. Are you guys eventually going to market products with Solésence, if you’re manufacturing the total end product that could be competitive to the customers that you are already working for, so?

Yeah. I think the -- for now we’re focused on the business as it is, which is have been proven by other companies to be a very successful and profitable model. Going forward, it’s an interesting industry, because there is a lot of, Kevin, often refers to it as cooptation, where you get people that are competing with each other on one hand and serving each other on the other. And that may be, but at this point, I think, it’s a lot to bite off just because you -- sales organization is required it is larger and there’s a whole bunch of infrastructure that we don’t have. And we are building toward having the infrastructure to do volumes of the Solésence products as envisioned right now. So, yeah, who knows, down the line it’s quite a possibility.

Well, the reason I ask is there was a comment here in the press release, and it says, while we’re happy with these results. They’ve been depressed due to our increased investment in development and marketing of our new finished products. My question is, are those costs were you bit blindsided by them or were they more expensive than you had anticipated or did you end up picking up more of the responsibility than you initially had hoped for in the preliminary talks with the customer or how did that come about exactly?

None of them really, I think, the -- if anything, I would have liked to see it happen sooner. And we’re spinning up the organization to get the speed to be able to support these launches and I -- we had some opportunities that we just couldn’t get done for one reason or another. So the spending was something that we always planned on doing. It’s not outsized compared to what we expected. If anything we have spent less because we have less to spend until we build the business than we would to really kind of speed to file here. So that’s one of the -- that comment is just meant to look at, I don’t think we would have a very bright future without business development, obviously, but the base business if you took out Solésence would be cash flow positive and moving along. We’re just -- we’re consistently investing in developing not just the products, but one thing that I like the calls are tough, because you repeat yourself, because you have so many people that don’t listen, but then you have the group that regularly pays attention to what’s happening. Building the test data sets are really important and we get away with -- historically we would do as little as we possibly could to try to get sales. The reality is, the better job we do on that -- on the front-end the easier the sale is, the easier it is for the brand to put things on the label to entice the consumer to buy them. And as we go down the line that really, we will end up spending. I predict we will end up spending more on testing than we are spending on any other part of development just because it’s the kind of external seal of approval that everybody looks for and that…

Okay.

… those are the costs -- some of those costs and we also ramped up our formulating group last year as well. So that was all expected.

Will the actual trademark names Solésence always appear on the ingredients list of the customers that you formulate for?

No. That’s a negotiated thing. We would like it to. There is not only do we have the name Solésence. We also have patent numbers associated with it that potentially could be disclosed, which again every customer we have would have to debate whether that gives them more of an advantage or disadvantage by disclosing it, it would always give an advantage to Solésence. And then we also have the -- we referred to our technology is Active Stress Defence and the website and to the customers and that could be something that would be nice to have and labels, really a lot of it depends on leverage. Who is where in the cycle and then also, I think, as we get some growth and we get more popular, I’d rather be the destination trademark or the one that people want on their material versus the one that has to talk its way on to the material and we’re kind of in that early stage yet.

So right now the people who are buying it are seemingly thinking that Solésence is a bit of a secret sauce to give us an advantage and we don’t want to let the outside community in on our proprietary advantages?

Yeah. Some, some…

Okay.

But I mean earlier we talked about the color science agreement. So, I mean, they’ve effectively by having that agreement and it is public and people know that we’re working with them. But, I think, it probably goes either way depending on the customer, depending on the relationship. And really as we get more entrenched in these businesses, once people -- once you launch a few products and it works and then they come to you to launch the next series of products, you get a comfort level and everybody kind of builds that trust that you could talk trust or you want, but until you actually deliver on it, it doesn’t really come home.

Right.

So that said I’m happy with the relationships we’ve developed so far. I see them expanding and I really think we’re in great spot.

Okay. Is the coating business revenue declining or increasing?

Well, it’s probably going to stay relatively flat. It grew over year-over-year, but if you look at our coatings business over five years, it moves in a range. Now it’s -- I like to thank these things are going to keep growing incrementally. Logic, would tell me that in some cases where we are not doing active business development and product development, we’re completely reliant on our customers to do that. Some of them like that can be does it effectively and it is out there building some sales. Some don’t to the same extent. And I have a detachment or -- detachment probably wrong. There is a distance between us and those customers that we wouldn’t have if we were primarily focused on those businesses. So I think it’s best to assume that things are going to be relatively flat in the coatings piece. I think personal care ingredients are going to continue to grow. But I -- you’re always subject to market forces, but right now and for some time in the past it does seem like we are continuing to see more and more demand from minerals based and as if you look at the trends, the trends are toward more natural, less chemicals, fewer ingredients, lot of things that really we fit well into that placement.

And then same question for polishing business, increasing or decreasing?

Jury is still out on that. I think the reason we ended up doing the cooperation with Eminess is to have them apply their marketing some of their product development to it to see if we can get it to grow. We knew that given the resources we were going to apply to it, it was going to attract. That being said, there are some embedded customers in there that really like the products and may end up -- we have had some of those customers for 10 years, 15 years may end up. But I look at that as something that the jury is still out. As I mentioned that [Mr. Prater] earlier by the end of the year we’ll see how that’s rolling along. But I do have faith in their ability to market the products and get them into the market. And there could be some growth there, but that’s not going to be the big growth driver for Nanophase.

Okay. That does it for me. Thank you.

Thank you.

Thank you. And I’m showing no further questions at this time. I would now like to turn the call back to Mr. Jess Jankowski for closing remarks.

Thank you, Victor. I’d also say that before I get into my prepared remarks, we had series of shareholders contact us last week and the week prior warning information and this is always given the timing of the call, I am never really in a position to talk to people before we do the press release and do the conference call. So anybody that has done that please don’t feel snubbed, it’s something that’s difficult to keep up on. Thanks to all of you who have taken the time to listen and to support Nanophase and Solésence. These are exciting times for me and for all of us at your company. Internally we are working hard to capitalize on a series of opportunities that exceed any I have seen in my history with Nanophase. I believe 2018 will be another year of first and that you’ll begin to see external evidence of the transformation of our company. Looking forward to the opportunities to discuss the business with all of you again very soon. Have a great day everybody.

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