Thanks Andrew. Good morning everybody, I am glad you are here.

Thanks for being with us today for our third quarter 2014 financial conference call. I'm joined again today by our CFO Frank Cesario.

We had stronger financial results this quarter and we continue to see success in our ongoing business development efforts. At a high level, as we discussed briefly in the press release, our Q3 2014 revenue came in 20% above that of the same quarter in 2013 and again we were ahead of the average quarterly revenue rate of last year.

Additionally, our Q3 and nine-month bottom line was significantly improved over the last years. As I've said this is a direct result of focusing on our top opportunities as well as running our business as efficiently as possible.

Even though this was a good quarter, 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 need to focus on year-over-year progress both in financial results and in plan execution. Our capitals will lead us to building a sustainable business over the typically drawn out times the market the company has experience in advanced material applications.

I also believe that the path from sustainable to exciting will be much shorter than the path from struggling the sustainable as then. We are all focused on increasing our revenue and our margins in a material way over the near-term.

We believe we've identified a number of markers that make our growth expectations sensible and as I keep saying the goal we are all after is the significantly increased the equity value of Nanophase. That's when the exciting part will come in.

After Frank provides the short overview of our financial results, I will talk about our key business development goals for the near and mid-terms. These are focused on these main areas; personal care technologies, surface finishing technologies and energy technologies, including energy storage and solar control.

Frank?

Thanks, Jess. Good morning.

This is Frank Cesario. Before I begin today's overview of our financial results for the third quarter 2014, please remember that all financial results are stated in approximate terms.

Revenue for the third quarter was $2.7 million versus revenue of $2.2 million for the comparable 2013 quarter. Gross margins were 30% for the quarter versus 24% for the comparable period of 2013.

The net loss for the quarter was $0.3 million or $0.01 per share compared to a net loss of $0.6 million or $0.02 per share during the comparable 2013 period. The nine months ended September 30, 2014 saw a revenue of $8.1 million versus $7.8 million for 2013.

Gross margins were 31% in 2014, versus 29% in 2013. Net loss for the 2014 nine months period was $0.8 million or $0.03 per share versus $1.6 million and $0.06 per share in 2013.

Many will recall that we have virtually no receivables at the end of 2013. We have rebuilt our working capital position to normal levels and ended the third quarter 2014 with $2 million cash position.

Our company remains debt free. Jess?

Thanks Frank. I am happy with our financial performance for Q3 and I expect it to continue to improve overtime.

Since the financial results speak for themselves I’d like to offer updates on our main business development areas. These areas are our top focus as we continue to build Nanophase to achieve the highest sustainable value possible again they are personal care, surface finishing and energy technologies which include energy storage and solar control.

We expect these to make a meaningful difference in the near and medium terms. Relative to personal care which is composed largely of our active ingredients for inorganic sunscreens we are continuing to see a good market for our engineered zinc oxide.

We are on track for a record year in terms of zinc oxide volume and we believe they are positive indications that within a range of normal fluctuations, this is a sustainable to growing business for Nanophase. 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 markets.

We are also working to develop new products for this market and broadly we expect to see revenues keep growing incrementally or better over time. We expect this market to continue to be a strong one for Nanophase.

I would like to cover personal care technologies first because it currently contributes to the most to our bottom line among our top areas of focus, that said this is the most mature of our current business development areas and although a great financial foundation for Nanophase, this is not what will propel us over the time. In terms of the (inaudible) near-term growth that would be in the surface finishing technologies market.

This area is very different from any other area that Nanophase is currently developing in terms of how we approach it and the customer and market profiles involved. This is the market that includes many medium size companies that may each ultimately buy a low six figure amounts of our (inaudible).

To reach these customers, we have to do more technical support and we had to develop greater application data to support the selling process that we do in our other markets. That’s why we invested in our policy earlier this year and that many of you have discussed that with us and we discussed that in our press releases.

Our buyer is typically an engineer which in some way makes for easier sale although no sales are truly easy. This is the market where we have the greatest near-term upside and where we can have the greatest direct impact on accelerating commercial adoption and building sales.

At this point, we still expect our 2014 surface finishing revenue to roughly double 2013 volume and be in the mid-six figure range. For 2015, we expect our surface finishing volume to roughly double again with upside potential beyond that.

At that rate, we could crack in the seven figures in volume next year and have room to grow. Of the four key areas we are focusing our business development efforts on, we expect this market to have the greatest impact on 2015 growth.

Our two new energy technologies have the time-to-market which puts them in the near-to-midterm commercialization group versus the near-term surface finishing or polishing activities. We are moving forward both in the energy storage application which refers the batteries and then the solar control area which refers the several applications involved with improving energy conservation.

For the battery work, since the last call, we have had a large battery manufacturer duplicate the results we used to validate our value proposition along with another large manufacturer that is now going down the path of manufacturing their batteries on a small scale production basis and incorporating our materials to test our value proposition further. While due to confidentially restrictions, we can’t share more details, we have active projects going with several companies where we hope to see one or more move past the test phase into the commercialization phase in 2015.

We still have the way to go prior to commercialization decisions but we expect commercial revenue in 2015 followed by larger volumes in 2016. As I mentioned last time, we are further along in the battery application then in solar control, the based on test results and market feedback in both areas we see opportunity for very large, profitable volume across our energy portfolio.

I repeat also that ultimate commercial success remains to be seen here, particularly given our limited past exposure to these markets but we are making progress and we continue to make progress. In both markets, our demanding improvements that we believe Nanophase can deliver and we are seeing some proof of that in these validations of our value propositions.

While it’s difficult today to determine the revenue that will come from the first year of our product’s future commercialization, we are pursuing these energy applications because we believe they can both contribute seven-figure revenue in the near to midterm. In both of our energy businesses, we are making good headway toward commercialization.

To summarize, right now, our top focus is in these areas, we see all of them personal care, surface finishing and the two energy applications as the markets that can improve Nanophase significantly in the near and midterm and that's where to building our time and money. We are at a good spot today and on that note, I'll tie things up.

Although most of our investors listen to the webcast to 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 sure or to share your comments. Andrew, would you please begin the Q&A session?

Good morning guys.

Hi, Bill.

Hi Bill.

Congratulations on the progress on the – in particular battery side. It’s very-very exciting on the small-scale production being initiated.

Thank you.

And that's really good to hear. Let me ask you, Frank if I could please about the trade accounts receivable, you got about 1.3 million in their versus 52,000 on December 31, could you address that please?

Sure. The end of December 2013 was an anomaly.

Our fourth quarter shipment tended to go in the first half of that quarter almost exclusively, customers paid right before the end of the year, everything that could be atypical and accounts receivable for a company that collects it’s receivables on a timely basis, half in the December 2013. So as we have tried to say every quarter, that was the outlier.

So we ended 2013 with more cash and less receivables than we intended and that was fixed as we got into 2014. If you look at this company’s history, about a million dollars is a typical end of quarter accounts receivable value and that's about we are timing in now, again it’s fluctuates depending on the timing of shipment.

Okay, thank you. Let me go back to the batteries, just one question there please.

You mentioned that the one potential customer really successful in doing the duplicate, I guess it would be like a verification of things, could you tell us what this proposition really centers around? You have mentioned lower cost before and its performance like better amperage or better...

It’s a combination of things. I mean essentially this is an alkaline batteries and we are producing the material that and we have a pattern of pipe for it, I don’t talk about too much detail but basically we are producing a material that replaces a much more expensive material that helps eliminate gassing in batteries.

So when batteries are active they always generate hydrogen sulphide and other things hydrogen particularly which is why in the old days we saw lot of batteries exploding, if we extend the flashlight for too long it still happen and we believe we have a replacement for that that will be more competitive than what they're using cost-wise and in some of our testing you actually can improve the life of the battery. Now the company in question has duplicated our testing which is exciting because at core Nanophase is not full of electrochemical or not a battery company, we are material company and so the testing we did went to the local lab put things together, random test for us, we duplicate it where we could hear with their minimal facilities and when I talked – we set up a pretty solid polishing lab.

We don't have anything like that irrelative to batteries, so it was exciting to have a [marketing] company to duplicate our results. Now they were duplicated results we had now we got to do with their materials and we used test material that were available in market that are necessarily representative on individual basis of a given company.

This is a lot like Kentucky Fried Chicken or Coke and everybody has their own formula for what the guts of their batteries are and they don't care to share them. So what we do is we collaborate with several large companies and share data but it stopped that sharing the guts puts in there and in our perfect world, I would like to have anode materials and everything from all the companies working with, so we can duplicate the test but the part it gives us a competitive advantage when it comes to negotiating down the line.

So I am excited about it. I know that we have another company as I mentioned that is, it has done a production run, it is putting our material on battery and it’s starting and testing and as you might imagine the testing is, there are multiple ways to test batteries there is a fast discharge, intermittent discharge, low discharge.

The low discharge takes months to test, so we know that this takes time but we are getting consistent feedback and I would say relative to for the all (inaudible) on the on the call, the people that have been around, this is not the kind of just like two years of testing, this is months and we are getting consistent positive feedback in the battery’s area which I take the hard as a very positive thing. We are also, we have got the feet on the ground, we are out there visiting and talking to these people regularly.

We have got dialogue going and in my experience which has been both painful and positive over the years is that these people aren’t talking to you and spending lots of development time and product development time and plan for time unless you have got something positive about the direction we are going.

Okay, good and what are your current thoughts on exclusivity?

We have reserved the right and in every case that we are dealing with to have that and so the question becomes really what the market thoughts are on exclusivity. In a perfect world, we would all like a big honking exclusivity payment and that a stream that goes beyond that we have -- the companies we are working with are well aware that that is on our list of things to pursue if it’s available and are willingly under that kind of umbrella willing to do the testing.

There are a few companies that we haven't worked with specifically because they don't want the rug pulled out if we decide we're in goal exclusive and this is a long process, we may or may not go that way. My thoughts on that are we will always do what accretes the most value in the long term to the company and at this point, it is not really clear.

It may be that that by supplying this material broadly, we get the biggest possible market hit or it may not be and I think that needs to be determined over a period of time.

Okay, thank you very much guys.

Hi Rand.

Hey gentlemen, how are you?

Good. How are you?

Nice results. Actually my question has a little bit to do with the dovetail on the last question and it has to do with the concern around adoption of new technology for some of these companies without the liability of second source and so my question is, while I understand the exclusivity situation, what is your philosophy approach with some of these companies in the development stage from second sourcing requirements since those are pretty much, it’s going to be paramount to any company for the adoption of new technology.

We recognize that there may be a concern. We haven't been seeing their concern in this market with BASF we are sole-source and we have been for years and I think that adds to the confidence level on the lot of the potential customers down the line and I think also frankly our relatively low, small sized, the level of resources we have makes these companies comfortable that they have the ability really to impact us if they were required to step in and guarantee a source somehow by helping us to do that I think they could.

Lastly, I would say while the materials we produce are unique or close to unique, the raw materials we use to do are not. So I would think that the biggest the issue we ever had as company was the Chinese (inaudible) problem a few years back and in addition to that thing mitigated the materials that were working with particularly in the battery area are not in that class of material.

It really is the plasma process that we use to manufacture things gives a different surface chemistry, different surface quality to these particles than you can get by other means. I am sure as soon as I say that I am sure somebody is out there right now is trying to figure out way to make their own version.

But really it's not a, the sourcing risk to those companies is a more of Nanophase direct risk than it is that we can get more material and I think they look at it and say okay we have got a sub $20 million company here with 50 employees that has been delivering FDA quality materials in the 100 ton quantities for years and I don't think it's the big deal. The reason I say that and I don't mean to be cavalier about it at all Rand that it doesn’t come up.

So it's one of those things that we internally we do a lot of risk analysis internally and that's one of the things we are always concerned about that we are being responsive to that and to the extend we can, we always look at our sources of raw material and make sure that we are not self sourced on anybody and in the vast majority of cases, we are not where we have an alternative that maybe inconvenient but certainly it would be effective.

Okay. And the last question is you guys seem to be doing a very-very good job of massaging the lumpiness out of the P&L and I am wondering if you might have some better color on when you think a breakeven target looks promising?

Well, I wish we can take more credit from massaging the lumpiness I mean a big chunk of it has to do with the demand for sunscreen material has been more uniform as we go the last year's fourth quarter was anomalously low probably which is (inaudible) that the earlier question about the AR, the second half of the quarter there was no volume. In terms of breakeven point that after this company is in the --to do it for an entire year on regular basis is in that $12 million plus range.

For the nine months we burned less than $200,000 in cash, last week breakeven at 12 million of cash breakeven that gap breakeven which is probably a few million higher. But I think that is possible given our outlook going into the year, I am not willing to predict it as a forecast but – we have enough volume in our pipeline and enough expected volume going into the year that it's something that we could do next year and I would say my confidence level is much higher saying that and it would have been this time last year is based on the fact that in I keep bidding up these four areas that we are focused on and part of that focus is that we just have got good market feedback, we are getting regular market feedback, we are very engaged on the polishing side which is kind of like our the safe business where we are going after smaller but sizable chunks of businesses and we are seeing that grow and then we have got the energy areas which are larger and good feedback there.

I think we are going to see some growth into next year that is better than the growth we have seen over the last several years, not counting the big change from the trust in ’09 but I mean it's quite possible we hit it next year and it's a clean goal internally. One of the wrestling matches we always have, so (inaudible) is we do not want to breakeven at all cost because ultimately everybody is here for a good equity return and right now we can breakeven at this revenue volume today if we eliminate a lot our product development support and we think that that range where we get into that 12 million range allows us to continue to do product development, business development, strong marketing going to new market while feeding the beast here and keeping it going in and we have done a nice job, I forgot what our best quarter was this year but I think up until the first six months, I think we burned out 75% of our cash in the third quarter because it’s just a such a small number, was it 20,000?

20,000, negative EBITDA for a six months, so in that respect negative cash flow before capital expenditures.

Yes for the first six months and we were right there. But we do have to spend some money on capital next year, we have people that need to be paid and we have shifted a lot of that compensation to equity which is so that we are better aligned with the investor body or other stakeholders, may be also just have people not in the same position I mean certainly your leadership team here is very equity focused and one of the things that I have been doing as CEO over the last several years is really been trying to push that down and explain our leverage is good, I can't give you a promise about how this fact is going to move, which can be traded, there is a bunch of issues that are difficult to define but I do know that one good customer pushes up over that hub, two good customers push us comfortably over the hub when you are talking about the energy businesses in particular and we have got tailwinds in our personal care business which is nice.

So I think it's walnut, willing to projected for next year. I think that we are really close and as we get into the year, it will be easier to talk about it and part of it I know our shareholders take this degree of nebulousness but it has a lot to do with -- we are chasing some big opportunities and they take a while to commercialize and the initial commercialization is slow but when we can share the initial commercialization and maybe that's the few hundred thousand dollars in volume that's going to be part of the large that feeds bigger volume as we go and that will be a real telling time for us.

Okay guys. I appreciate it.

It sounds very promising. I appreciate the feedback.

Thank you.

Enough of cash to get there?

Well that's kind of right to it. We do.

One of the things that we want to avoid is having to raise the capital from an equity perspective just because it dilutes everybody in addition to diluting all of you it dilutes all of us and it's an area that we consistently monitor. We plan and it has been able to do that I think if we fall short of cash flow breakeven in 2014, it doesn’t necessarily mean we won't have enough cash to get there.

I believe we have – I mean we are close. We just talked about – when you are talking about few hundred thousand dollars in cash burn we are doing a really good job managing it and we are getting good market feedback and we are – this is an area of huge focus but ultimately just like you, assuming you are an investor, from my perspective every time we do that it cost everybody money and I don't want to do that.

Our best promise is not been shown publicly and until that happens. I view as this has been being undervalued without sticking my neck out in the (inaudible) Safe Harbor so I think that to me I certainly don't want to sell shares in Nanophase for $0.45/ $0.50 share what I think there is all this latent value here and essentially our biggest revenue drivers have yet to be commercialized.

So I think we are in good shape there.

Great. I fully agree.

Nothing to add to that to really, just now that we are always ready to do we have to do. But it's just that very clearly our goal, our plan is not to raise additional cash to achieve breakeven.

We think the business is very close right now.

Okay thanks very much.

Just falling back to the battery, this component you are putting in we have talked about being substantially less in cost for the battery manufacturer, is it that still accurate?

It is and it's – it would be a material that would generate good margins for us give that the benefit we are working through that all of it. You never know for sure until you get there because everybody interestingly in light business, this business you know get their bag packed so somebody actually puts it in the production but we believe we are going to be able to provide a benefit to these manufacturers both in the cost sense and in the performance sense.

Our internal value proposition proves both; we are working with them to prove both. We believe at minimum in the cost sense we have got an advantage and that should be helpful and this is an area that there is fair amount of volume.

It's not the biggest volume area in the battery world but it's definitely that seven figure of volume range. Now eight figures, I don't know.

It depends where this goes but if it does go it starts to move, we will start evaluating other areas in the battery markets to look at this point with our size, scope and focus and bottom line we have got about all we can bite off and chasing the markets we are in.

Okay. Now the battery manufacturer what kind of capital expense will they have if they were to change from what they are using now?

I assume that there is not any, it's just changing your material only?

I don't know that for sure. Our assumption is the same though Bill.

Typically we have, we run the spectrum on that relative to products. In personal care, people that are using zinc oxide all along our material is the direct drop in.

In polishing, some of our materials are drop in some are not. We believe in the battery application it's not going to require engineering on the part of the company to either to our format or to what they have in existing format to work with.

Now there is also the potential which is difficult for us to ascertain that they could decide to use more of our material than the use of the more expensive material and reduce the quality of their package because that wouldn't be required to be strong. Those are things that are difficult to postulate and at the end of the day, until we get these customers commercial it doesn’t be whom them to share some of the information with us because all it does is it put us in the better bargaining position.

Yes. That's right.

Okay. Well thank you again.

You are welcome.

Thank you.

Okay. Thank you, Andrew.

We are glad that all of you are along with us on this exciting ride, we believe we are turning the corner, we are happy about that. We are happy you are here with us.

I keep saying it because I keep thinking it and we keep approaching the business’s way, we are working hard to build the sustainable company that becomes an exciting company with exciting returns to all of our stakeholders. Our hard work continues to payoff and we expect our success to accelerate next year.

Thanks again for joining us today.