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 supply agreement, demand 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 hand the conference over to Mr. Jess Jankowski, President and CEO.

Good morning, everybody. We appreciate your joining us for our Second Quarter 2012 Financial Conference Call.

With me today is our CFO, Frank Cesario.

Before we get to our financial results and talk strategy going forward, I want to take a minute to thank those investors who participated in our recent stockholder rights offering. This was a new and significant undertaking for Nanophase.

It was an opportunity to purchase shares of Nanophase stock that was only made available to our existing shareholders, who then purchased every available share of stock, by placing oversubscription requests for more shares than we had to sell. I thank you for your confidence, and I share it.

Nanophase has been putting down deeper roots, with its more aggressive strategy which continues to show signs of success.

In this current economy, really, since 2009, we know that Nanophase's most fertile opportunities for growth, namely in new product development, have suffered from a reduced focus throughout our customer base. Many of our customers have been scrambling to cut costs and enhance short-term profitability, rather than invest in future growth through new product development and introduction.

I'm confident, that we would have had more new business growth during this period, had the macro-economic environment been more supportive. It is what it is, and we've proactively managed within this environment, gaining momentum as we continue to launch and develop new products.

Even given these pressures, we still expect 2012 revenue to exceed 2011 revenue, which exceeded 2010 revenue, which exceeded 2009 revenue. It may be taking longer than any of us would prefer, but the business has been enduring, and is really taking shape.

Getting on to the results, the second quarter was stronger than the first quarter of 2012, and the bottom line showed an uptick over the second quarter of 2011. Our most important goal as shareholders, and members of your management team, is to continue our progress toward what we expect will be our third consecutive year of revenue growth as we strengthen our bottom line and continue to improve shareholder liquidity, over and above what our shareholders have recently provided through the rights offering, in terms of managing cash, and strengthening our balance sheet.

We're seeing new orders from diversified businesses, including companies incorporating our scratch resistant additives launched last year and some unique applications that are more narrowly focused. We also can't help but be enthusiastic about our largest customer just launching a new product line that we helped develop.

As you may recall, we announced the launch of our LSA zinc oxide about 2 months ago. You'll be hearing more about this product as commercial adoption accelerates.

These product introductions should boost revenue growth as they gain momentum. After Frank provides a short overview of our financial results, I'll go into a little more detail about our product initiatives.

Frank?

Thanks Jess. Good morning.

This is Frank Cesario. Before I begin today's overview of our financial results for the second quarter, please remember that all financial results are stated in approximate terms.

Revenue for the second quarter was $2.8 million versus revenue of $2.9 million for the comparable 2011 quarter, and $2.4 million for the first quarter 2012. Gross margins were at 31% versus 34% for the comparable quarter of last year and 23% for the first quarter 2012, highlighting our sensitivity to small changes in revenue volume, which offers a very positive feature as we add new sources of revenue to our mix.

The net loss for the quarter was $0.4 million or $0.02 per share compared to a net loss of $0.5 million or $0.02 per share in the comparable 2011 quarter, and $0.8 million or $0.04 per share in the first quarter of 2012.

We started the year with $2.7 million in cash and equivalents. Finished the first quarter with $2.3 million and ended the second quarter back at $2.7 million.

No funds were received from the rights offering until July, so that $2.2 million in net proceeds will show up in our third quarter financials as an addition to our cash, making our company that much stronger. The company remains debt free.

Before turning the call back to Jess, I would like to join him in thanking our stockholders for making the rights offering a success. Jess?

Thanks, Frank. We're halfway through the year, so it's time to see where we're at.

I'd like to talk about launching new products and creating incremental revenue streams.

During the first half of 2012, we announced a new product offering with our largest customer, BASF, related to a new type of our zinc oxide referred to as LSA. LSA stands for, low surface area, and pertains to the material properties that some customers, customers who don't currently use our existing zinc oxide for personal care products, have been demanding.

We couldn't be more excited to be collaborating with BASF on this project and to have seen it roll out to the world in May, and now to see it begin the process of working into supply chains.

On the other hand, we aren't a one trick pony. Two customers recently moved us from development testing to commercial testing, creating products using our material on their production equipment as part of scale up processes.

We can't disclose the entities or the applications, frustrating, I know, but we're talking about world class companies, each doing something novel, and each using our material to make it happen.

We see them as having the potential to become 6- to 7-figure revenue opportunities, respectively, on an annual basis. Of course, this assumes these products pass the ultimate commercial test, namely, downstream customer acceptance, which is difficult to predict.

Additionally, we also have new solutions in a few hot areas that are approaching potential commercialization phases. We also see products in existing markets, like scratch resistant additives continuing to progress.

We've also developed new polishing solutions, targeted to resolve particular issues and what may represent a multimillion dollar addressable market for our materials. This relates directly to the work we've been doing with Lewis University.

There are other smaller successes as well and each builds upon the other.

To reiterate what we said last quarter, we have a solid pipeline of opportunities across several product lines and markets, where we expect to create and grow new revenue for 2012 and 2013.

our coatings products, primarily scratch-resistance additives, but also in other coatings applications; new polishing products in various areas outside of our traditional CMP market, you may recall that CMP refers to chemical mechanical planarization or polishing of semiconductor wafers; and products introduced to several specialty markets.

In 2013, we also expect added revenue growth from the maturation of a number of our coatings applications, an expansion of our new polishing products, and the introduction of some new personal care products. With the company's current business cycle in personal care, these new products should begin to generate meaningful revenue in 2013.

You'll hear more about these throughout the year.

This new business is very important for driving our year-over-year revenue growth, since we're also experiencing flat or declining revenue in some of our mature products, particularly with the high cost of ceria for CMP polishing. New business growth is a key measure for me, because it signals that the direct selling model is beginning to deliver and we are definitely moving in the right direction.

In my view, we have significant potential and a solid foundation from which to continue our growth. The evidence tells us that the model is working.

I look forward to talking more about the work we're doing in our new application areas, as we continue through 2012. And plan to keep you posted on our progress through news announcements and conference calls.

I will also be delivering a keynote speech at the NanoBusiness and Nanomanufacturing Summit in Boston on September 6, which I invite all of you to attend if you can.

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. We've also received some questions from shareholders in advance, a few of which we may address before the end of the call.

Sahid, would you please begin the Q&A session?

It sounds like you are making progress on a number of different fronts. So the products, and areas, and applications that you cannot talk about, do they have anything to do with the polishing or scratch resistant coating area or was that totally separate from those areas?

Or can't you even comment on that -- on that level of...

They don't have anything to do with the polishing business and generally not the scratch resistant coatings so it's kind of -- If you look at our -- kind of the way we structure our business, we really, we started out in our architectural coatings, abrasion resistant coatings, and really it's more like we have a coatings group. And it turns out that a lot of the technology and a lot of development we've done for a specific applications is broader.

And a lot of times we'll work with a company, a large coating company, like many of the companies you've heard of, somebody like a Valspar, somebody like that has 30 different kinds of coatings of which we might be able to play at 4 different ones, 2 architectural, one abrasion resistant and one is something we never considered. But the principles --the chemical principles and the physics principles are the same.

So we're having a few of those coming along. And what we are finding is that in some cases, some of these things are perking through development at these companies for 3 or 4 years, and all of a sudden, things start to crop up.

It's a frustration of mine because obviously I've been charged and we're all charged with making this thing grow as quickly as possible and building business. But I also realize it's time consuming.

Hopefully, we'll have some good feedback by the end of the year on those opportunities as to whether they're going to grow or not. Essentially, what we've seen that is a nice plus compared to where I've seen the business in the past, is we are achieving more and more opportunities where we get to the point where they're actually launched.

And then what happens is, it's up to the consumer of that thing, not necessarily a consumer product, but the industrial consumer, to either accept it and like it or not like it. And what I've seen just from my perch here over the last couple of years is we're getting more and more of that.

And these are example of things that are moving into the commercial space. And our hope is, of course, that they takeoff and they present the nice 6 figure revenue.

The one potentially is a 7 figure annualized revenue for us. But that's something I've seen that I really -- I really appreciate it and I really have enjoyed seeing materialize in 2012 that has been a much accelerated compared to in the past, which makes sense when you think about how long is the development cycle is.

I guess that's the interesting and yet exciting, but somewhat frustrating aspect, and that is some of the coatings applications seem to be not 3 to 5 years, but maybe like 7 to 10 years. But you're saying some of these look like they are actually seeing a market application before these extraordinary long trial periods?

Right. We've seen some -- we did the abrasion resistant launch in the first quarter of 2010.

And we've seen some customers coming onboard and actually having commercial products now. Now, some of those are in that 10,000 to 20,000 range, they're not -- pardon me, first quarter of 2011.

We saw those basically get commercial in less than a year. Now, some of them are getting commercial in less than a year and they're smaller because it's typical that a smaller, more nimble company will get out there, and try to get the product and the opportunity maybe isn't as and as big.

But we are seeing more kind of a market basket in that area particularly. One of the reasons, we got into that business was because we're trying to balance potential market size with time-to-market, where some of these businesses, the time-to-market is so extended.

We're seeing some fruit finally, but it's not uniform. Now, to your point, some things will end up being 7 years.

Most I think are still going to be in that 2 to 5 year range. We've seen things happen in less than 2 years with the -- actually in a year with the abrasion-resistant.

So we're trying to balance that out as best we can.

Well, it was sounds like you've got, as you say, a really good portfolio and pipeline moving along. And I think it's going to surprise everyone and please everyone to see this evolve.

Okay, thank you. I had -- there were a few, a series of queries that came in from shareholders that I'd like to address just a couple -- try to consolidate the ideas.

One was, there was a frustration during the offering period that we weren't being as responsive as we normally are and that's largely because we're in a quiet period. So I apologize to those investors who were annoyed that they were getting either oblique responses or nonresponses during that period because that did happen.

We were in a position where you can't be out marketing the company. It's considered marketing if we talk about anything and then standard, I will not disclose material, not public information normally, but the standard of materiality goes way up when you're in the middle of an offering.

The second one that I think is worth mentioning, and we touched on it either last quarter or the quarter before, is that we're seeing some growth in our overall business with BASF. And one of the frustrations several shareholders have said is, hey, you're talking about new business, this is old business.

BASF is great customer. We love BASF, but this business is the same business you had 3 years ago.

And the reality is -- it's not. A couple of things have happened.

There is a bigger push for all natural products and so we're seeing more business probably stemming from the West Coast because of that. There have been changes in the FDA view of a lot of the organics.

If you recall, we make an inorganic, and so those materials -- we're displacing some of that, so we're seeing some growth.

The other big change was that since BASF acquired Cognis and incorporated Cognis into their business, Cognis was a more marketing driven company that did a lot of incremental development. BASF's model is, I want to launch a new molecule and really change the world.

Cognis' model is nimble, where I want to tweak it, I want to have multiple products, I want to go after different levels and that has directly impacted how we do business.

So we have a very nice situation where we launch this LSA product a few months ago. They're going to continue to promote that.

We've got more things we're working on with them. Those are really the first products we've launched with BASF in many years.

And we've been working diligently, certainly since 2008, to push them and not to push them as much as to show what we are capable of doing and what we can offer. And they have agreed that we essentially co-developed this with them.

So I'm excited about those changes and I expect what's going to happen over the next few years is we're going to see pieces of their business expand that are above and beyond the existing business, which will wax and wane as it always has, based on the cyclicality of it.

So with that I'll close and say that we're fully confident that we have the know-how of products, business strategy and potential to achieve our goals. We appreciate your continued support, and as always, we try to be available for any follow-up questions you might have.

Thanks for your participation and please enjoy the rest of your day. Thank you very much.