Jess Jankowski, President & CEO:

Good afternoon! 

Thanks to all of you for participating in our fourth quarter and 2009 year-end conference call. 

We completed the year with respectable revenue given the climate we’re in, and a significantly improved bottom line, during challenging economic conditions, and while adopting a new business direction. 

Our expectations were high and we’re pleased with the progress made during the year.
-          We have a cohesive, dedicated management team that’s well aligned and goal oriented.
-          We have narrowed our market focus which has increased our opportunities and success rate.
-          We have incorporated two new business components into our sales and marketing program – customer direct and now, end-user product sales.
-          And, the company is lean and debt free and, as you may have seen earlier today, we soon expect to significantly enhance our liquidity.

As you may know, we began 2010 with the history-making launch of NanoUltra™, a family of breakthrough end-user products for window cleaning and polishing, but before I discuss our new product line or our 2010 milestones, I’d like to turn the conference call over to our CFO, Frank Cesario, for a brief review of the financial highlights of 2009. 

Frank Cesario, CFO:

Thanks Jess. Good afternoon, this is Frank Cesario. When I first spoke with you at the end of the third quarter, I shared with you my excitement about being part of the Nanophase team and the new direction being taken by the company. I’ve been with the company only nine months and, while it may not be as apparent to our shareholders, I could not be more pleased with the progress that has been made in product development, sales and marketing and operations.  I’m proud to be a part of the success that has just begun.

Now, I would like to take a few minutes to provide an overview of our financials disseminated earlier today. Before I begin, let me remind you that all financial results are stated in approximate terms. 

For the fourth quarter we reported revenue of $1.6 million compared to revenue of $2.1 million for the fourth quarter of 2008. We have enjoyed sequential incremental revenue growth for the first three quarters of 2009 ($1.4 million, then $1.6 million and $1.7 million) and narrowly missed continuing that trend in the fourth quarter, despite an unfavorable mix of typical seasonality and continued tightness in the market. With that said, we expected revenue for the fourth quarter to be approximately $1.2 million and we beat our expectation by $400,000 or 33 percent.
The net loss for the quarter was $0.7 million or $0.03 per share vs. a net loss of $2.0 million or $0.10 per share for the comparable quarter last year. The 2009 figure includes a recovery of asset impairment of $440,000 due to legal settlement agreement in the process of becoming executed – that was the press release we shared earlier today - recognized upon the sale of our remaining Auction Rate Securities. More on this in a moment, but without this benefit the net loss would have been $1.1 million for the quarter. 
Our bottom line improved significantly from any perspective as a result of cost containment programs and operating efficiencies – running leaner is great for the bottom line and has had no negative impact on our revenue growth.
For the year ended December 31, 2009, we reported revenue of $6.3 million, compared to $10.2 million for year end 2008.
Net loss for the year was $4.9 compared to $6.4 million for year end 2008. If the bottom lines for 2008 and 2009 were adjusted for severance charges and asset impairment you would see a comparable bottom line as we are finished paying restructuring expenses and going forward will enjoy the benefits.

Our balance sheet for the year remained strong, as we finished the year with $3.9 million in cash and cash equivalents, and an additional $3.6 million in longer-term investments that is to be monetized at $4 million according to the agreement we disclosed earlier today. 

We paid off $1.6 million dollars of debt during 2009; with the final half-million dollar payment made in July, we are now debt free. 
We have had discussions on our conference calls and in our SEC filings, regarding the $6 million in auction rate securities. The credit freeze prohibited the sale of the bonds without a significant loss.   During October we were able to sell one of those three bonds for more than $1.7 million in net proceeds and the cash was reflected in our year-end balance sheet. 

Many of you will remember that there was a FINRA arbitration matter with Credit Suisse over these auction rate securities that was scheduled to begin in April. We are pleased to announce the parties have come to an agreement. Credit Suisse agreed to purchase our remaining $4 million in bonds for $4 million, and we agreed to drop our claim for the $280,000 loss on the security we sold last October as well as legal and other claims. Once this agreement is fully executed and funded the matter will be closed, allowing us to focus on more productive endeavors.
To elaborate on those more productive endeavors, I would like to turn the call back to Jess Jankowski.

Jess Jankowski, President & CEO:

Thanks, Frank.

Two thousand and nine was a year of challenges and opportunities, on many levels. I’m proud to say that our employees, management team, and board members, met these challenges, grabbed the opportunities, and today, your company is stronger than before, and well-positioned to make 2010 a banner year. 

Your company has become much more entrepreneurial; we are efficient, flexible and driven to succeed.

The company’s evolution, from a supplier of nanomaterials to selling nano solutions, took a giant leap in January with the launch of our NanoUltra™ family of products, designed exclusively for use on architectural glass.

The product was invented by Abby Farning, one of our up-and-coming R&D chemists. 

In a span of months, the marketing campaign was developed and led by our Director of Marketing, Kris Weigel; and Glenn Judd, our VP of Operations led the march to manufacturing commercialization. Both of them were helped by lots of capable support, from R&D to finance, and everyone in between. They pushed the product through the manufacturing process and out the door, for its launch at an international industry conference at the end of January. Undergirding this effort, Chuck Cucuras, our Director of Sales, has been aggressively working to raise awareness and develop sales; first, by building a solid base of alpha customers and now, by showcasing the benefits of our Nano-Ultra products to a broader audience of large window cleaners and distributors. 

This entire process represented the execution of an entrepreneurial company, thinking outside the ‘standard’ business model. 

NanoUltra presents a tremendous opportunity for Nanophase.  Initially, it targets the professional window cleaning market, a small portion of the $9 billion consumer-dominated U.S. market, which is comprised of both professional glass cleaning products and services, and consumer window cleaning products. We believe success on the professional side will provide our best opportunity to expand further into consumer applications.

Although window cleaning and polishing is far from a “high tech” industry, we found that it is an industry that is starved for solutions that allow window cleaners to be innovative, and to differentiate themselves from their competition. 

Nanophase has built a product for this market based on a particle that we originally developed for the semiconductor wafer polishing industry. We listened to what the customers wanted, incorporated that market feedback in to the NanoUltra™ product concept, and we delivered!

To give you an example of one of the projects we recently worked on, I’ll walk you through what’s been happening at a resort that has applied NanoUltra™ products to its windows. This is a project in the Caribbean, where we’ve been told it can cost these resorts tens of thousands of dollars annually to keep their windows clean, and, having glistening windows is critical to their image. 

They cleaned and polished their windows with our NanoUltra™ products, which chemically alter the surface of the window glass, so that a water spray, or rain, will actually work to help maintain clean windows. The product gives the windows a hydrophilic quality, so that water actually sheets down the glass, and, in the process, washes away sand, dirt, and grime leaving them sparkling clean and streak free, not just after the cleaning, but over an extended time. Additionally, the application process actually removes unsightly, difficult stains or etchings on windows, which can be caused by mineral build-up, and the leaching of building materials such as precast concrete and limestone. 

The issue of image is equally important whether you’re operating a high-end destination resort, or a commercial building that represents its tenant’s success, or their aspirations. The product family works and people are starting to notice.

NanoUltra™ is being sold through a growing network of distributors. Information is available at the NanoUltra™ website, We’re pleased with the incremental revenue growth that’s just beginning to be generated by these products.

To be clear, NanoUltra™ is not the only thing we’re working on right now, far from it, but it represents something tangible that we thought you would enjoy hearing about. It’s also a great indicator of the adoption of a more entrepreneurial focus on the part of our team.

While we are significantly changing various components within our product development and sales and marketing, we are still serving our long-term partners well. They have our commitment and support as we continue to strengthen these relationships, by engaging them in the exploration of creative applications with the aim of increasing our partner-driven revenue. We’re working hand-in-hand.

We mentioned in our press release today, that Q1 is shaping up to be a strong quarter, probably exceeding any quarter in 2009. Much of this has been driven by increased demand from our base business, with BASF, and in polishing. As a matter of fact, everybody’s working overtime in the plant, and we were pleased to be able to re-hire a few production operators this month to help cope with immediate demand. Things are looking up!

Our goal is to have multiple revenue channels from a mix of partners, customers and end users. Notice, I said we are seeking many revenue channels, not many markets. We still believe that our path to greatest success will be to limit our focus to three or four key markets, so that we can develop a deep understanding of how they work, and how we can best address their needs. 

The speed at which we continue to make progress will be affected by both the economy, and the rate of our migration to an aggressive customer-direct model, along with the normal timing of the adoption cycles in the markets and industries we serve. 

While we’re positioned for a rebound in the economy, we’re not just waiting for the phone to ring. We’re continuing to aggressively pursue multiple opportunities in the coating and architectural glass markets, while targeting products that we think will address needs for the plastics and hard surfaces markets.

We paid the price in revenue growth during 2009 to create a strong, well-positioned company.

Our business strategy, leaner operations, and new market opportunities, will drive revenue growth and a stronger bottom line during 2010.
Latif, please begin the Q&A session.


This is a great company comprised of dedicated, intelligent people. Of all the opportunities and challenges we faced last year, one thing hasn’t changed, all of us are aligned with our strategic direction: to build shareholder value and a strong, viable company – one that we can all be proud of.

I appreciate your time today, and I’m always available for any follow-up questions you may have.