Jess Jankowski, President & CEO 

Thank you, Shannon.  Good morning everybody.  We’re glad you’re able to join us to discuss our outlook for 2015, and for our fourth quarter 2014 financial updates. Frank Cesario, our CFO, has joined me again today.  During this call, we’ll be talking about the outlook for our four major growth initiatives, as well as updating you on our existing business, and of course, 2014 results.  

We finished 2014 with better results than 2013 which I’m happy about, but I want to focus on where we’re positioned, as we enter this year, 2015.  I see our progress moving Nanophase from doing the behind the scenes “blocking and tackling” required to develop business in our growth areas, to a place where we expect to see “concrete commercial results,” as in significant revenue from new sources, beginning this year.  Starting with the 2014 results, at a high level, as we discussed briefly in the press release, our Q4 2014 revenue came in slightly ahead of the same quarter in 2013, but each was the weakest quarter of its respective year.  Additionally, our full year bottom line improved by roughly double the increase in revenue over last year.  Financial efficiency is a way of life here at Nanophase.  We continue to improve upon every area of our business, not just in business development.  Even given those positive results, as many have heard me say before, I don’t like to get caught up in incremental quarterly changes.  Our business doesn’t run quarter-to-quarter, and our business development cycle is measured in months-to-years.  We focus on year-over-year progress, both in financial results and in plan execution.  Our top goals will lead us first to building a sustainable, then an exciting, business over the typically drawn-out times-to-market companies experience in advanced materials applications.   

As we discussed last quarter, I also believe the path from “sustainable” to “exciting” will be much shorter than the journey from “struggling” to “sustainable” has been.  I can see the path directly in front of us to significant revenue growth, which I believe offers the potential of increased equity value for Nanophase.  That’s when the “exciting” part will come in.  

After Frank provides a short overview of our financial results, I’ll talk about our key business development initiatives for 2015 and 2016.  These are focused on four main areas: 

- Personal Care Technologies;

- Surface Finishing Technologies; and 

- Energy Technologies; including

- Energy Storage & Solar Control


With that, I’ll hand things over to Frank. 

Frank Cesario, CFO

Thanks Jess.  Good morning, this is Frank Cesario.  Before I begin today’s overview of our financial results for the fourth quarter and full year 2014, please remember that all financial results are stated in approximate terms. 

Revenue for the fourth quarter 2014 was slightly ahead of the comparable 2013 quarter, but both periods round to the same numbers: revenue of $1.8 million, gross margins of 16%, and a net loss for the quarter was $0.9 million, or $0.03 per share. 

The full year results ended December 31, 2014 saw revenue of $9.9 million, versus $9.6 million for 2013.  Gross margins were 28% in 2014 versus 27% in 2013.  Net loss for the year during 2014 was $1.7 million, or $0.06 per share, versus $2.5 million and $0.09 per share in 2013.  As Jess stated, our bottom line improved by more than double our revenue growth.  

We ended the year with a $1.9 million cash position.  Our company remains debt free.   Many of you are aware that we have a $1.0 million cash covenant related to the exclusive supply relationship with our largest customer that we disclose in more detail in our SEC filings.  It is our intention not to raise “permanent” capital, opting instead for implementing a temporary borrowing vehicle should we need it to maintain compliance with our covenant.  This could certainly change in the future, but is the way that our Company is approaching 2015.  We anticipate putting something in place by the end of March in order to deal with working capital fluctuations.   


Jess Jankowski, President & CEO 

Thanks Frank.      

While the financial results show a nice improvement, I’d like to key-in now on our main business development initiatives.  These areas are our top focus as we continue to build Nanophase to achieve the highest sustainable value possible.   

Again, these are: 

- Personal Care;

- Surface Finishing; &

- Energy Technologies; which include;

- Energy Storage (or batteries); & Solar Control


We expect revenue from these areas to make a meaningful difference, beginning this year, 2015.   

In Personal Care, which is composed largely of our active ingredients for inorganic sunscreens, we saw another record year in terms of zinc oxide volume during 2014.  We also believe there are positive indications that, within a range of normal fluctuations, this is a sustainable-to-growing business for Nanophase.  We believe our expansion here is a reflection of a growing consumer preference for full-spectrum inorganic sunscreens (specifically, zinc oxide and titanium dioxide), which are also referred to as “physical sun blockers” in the industry, versus traditional organic sunscreens (like avobenzone).  Dermatologists have long preferred zinc oxide as a full-spectrum UV blocker, and movement in consumer preferences has helped in this area.  In addition to existing demand, which is primarily based in the U.S., regulatory changes in the EU are in the pipeline, which should present opportunities for growth in new applications there.  We expect this market to continue to be a strong one for Nanophase.  I like to cover Personal Care Technologies 1st, mainly because it currently contributes the most to our bottom line among our top areas of focus.  This is clearly the most mature of our current business development initiatives and, while being a strong P&L driver for Nanophase, Personal Care is not what we’re relying on to put us “over the top.”  

In terms of the surest near-term growth, that would be in the Surface Finishing market.  This area is very different from any other market that Nanophase is currently developing, in terms of how we approach it, and the customer and market profiles involved.  This is a market that includes many medium-sized companies that may each ultimately buy low-six-figure amounts of our polishing slurries.  To reach these customers, we have to do more technical support, and we have to develop greater applications data to support the selling process than we do in our other markets.  This is why we invested in our polishing lab mid-last year.  Our buyer is typically an engineer and the actual end-user of our products, affording us a higher level of customer intimacy.  This dynamic makes this a performance-driven sale, which matches our technology-focused culture very well. We now have the proper metrology, and the proper application-level production equipment, to allow us to pursue this business aggressively, and with credibility.  

In the first quarter of 2014 we exhibited at Optatec in Frankfurt, Germany.  Then we presented a good deal of home-grown data at the American Precision Optical Manufacturers Association, also referred to as “APOMA,” technical conference in the fall, which is very well-attended by potential customers and industry opinion-makers.  On top of that, we just got back from exhibiting at Photonics West in San Francisco last week.  Photonics West is the premier North American trade show for the optics and photonics industry broadly, and Nanophase had the opportunity to solidify our name in the industry, and meet with several current and many prospective customers during the show. We’re making our presence felt in this industry, and we are being well-received.  This is the market where we have the greatest near-term upside, and where we can have the greatest direct impact in accelerating commercial adoption, and building sales.   

Our 2014 Surface Finishing revenue approached double the 2013 volume, in the mid-six-figure range.  For 2015, we expect our Surface Finishing volume to more than double from 2014 levels, with upside potential beyond that.   Of the four key areas we’re focusing our business development efforts on, we expect this market to have the greatest impact on 2015 growth, probably beginning early in the 2nd quarter.  

Our two new Energy Technologies have a time-to-market which puts them in the near-to-mid-term commercialization group, a little further out than our Surface Finishing, or polishing, activities.  We’re moving forward both in the Energy Storage application (referring to batteries) and in the Solar Control area, which refers to several applications involved with improving energy conservation.  For the battery work, during 2014 we saw multiple large battery manufacturers duplicate the results we used to validate our value proposition, with entities actually manufacturing their batteries on a small-scale production basis, with our materials being incorporated, to test our value proposition further.  Although we originally expected it to materialize in late 2014, we now look for the commercialization phase to begin with more than one customer during 2015, to be followed by more significant revenue volume in 2016.   

As I mentioned last time, we’re further along in the battery application than we are in Solar Control, but based on test results and market feedback in both areas, we see opportunity for very large, profitable volume across our energy portfolio.   Specifically, we’ve engaged some of the largest players in the industry, along with some smaller players, and believe we offer a significant value proposition with both applications in their respective markets.  I plan to spend more time talking about both of these Energy initiatives as we get further in to the year. 

We talk about making progress, which is both true and critical to the end result.  And you know that I try to be cautious and avoid hype.  Without abandoning my longstanding approach, I will share my belief that our growth initiatives will yield meaningful new business revenue during 2015, and validate the strategy upon which the Company is based.  I look forward to talking to you further as the story unfolds.     

Before we go to the Q&A, I’d like to speak to some of the marketing outreach we’ve been doing.  I hope that all of you have now had the opportunity to see our newly updated website, which is at www.nanophase.com.

Probably of greatest interest to many of you, we’re ramping up our industry marketing pieces, which are released on a targeted basis, unlike our investor press releases, which we send to a much broader audience.  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.  Our current focus is upon expanding our presence in Surface Finishing.  If you navigate to the “About Us” drop-down, then to “News and Events,” you’ll see what we’ve been up to in this part of our business.  As we mentioned in our press release, you can also find a quarterly summary of these things under the “Investor Relations” drop-down, choosing “Investor News,” then “2014 Q4 Recap.”  

Additionally, we’ve expanded our presence on LinkedIn, Facebook and Twitter, for those of you inclined to learn more about Nanophase via those sources. 

While you’re on our site, or investigating these other sources, you’re sure to see that Nanophase recently celebrated our 25th anniversary.  Anniversaries are not always very meaningful in the investment context, but in the high-tech business of developing and producing nanomaterials for cutting edge applications, 25 years speaks volumes.  Our technology and our commercial activities have developed to a point where we have staying power.  I don’t keep the statistics, but I imagine hundreds of “nano”-driven companies have failed over this period.  Most never bothered to develop a viable commercial proposition.  Nanophase has real applications, real customers, and we sell hundreds of tons of nanomaterials, every year.  

Although most of our investors listen to the webcast, or review the transcript after the live call, we’d 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? 

Thank you Shannon.  

In terms of the direction of the Company, the quality of our pipeline, and the potential commercial value of our technology, I don’t think there has ever been a better time to be a Nanophase investor.  I’m glad that all of you are here, and I’m looking forward to achieving and enjoying great returns together. 

Thanks again for joining us today.