Solesence Inc (SLSN) 2003 Q3 法說會逐字稿

Good morning. My name is Rebecca, and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Nanophase technologies third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone key pad. If you would like to withdraw your question, press star, then the number 2 on your telephone key bad.

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 limitations, 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, a possible disruption in commercial activities occasioned by terrorist activity and armed conflict, 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.

At this time, I would like to turn the call over to Mr. Joe Cross. Sir, you may begin.

Thank you, Rebecca.

Welcome to the Nanophase conference call to review the third quarter for 2003. Nanophase attendees for the session, besides myself, are Jess Jankowski, Vice President and Controller, Dan Bilicki, Vice President of Marketing and Sales, and Nancy Baldwin, Director of Investor Relations.

The agenda for today's discussion is: First, Jess will review the financial results for the quarter. I will then return to summarize the company's progress during the quarter and update business and market development activities. After our prepared comments, we will be available for questions.

Jess, would you please read the financial results.

Good morning, and thank you for your continuing interest.

Please remember all numbers are approximate. For the third quarter of 2003, our revenues, at $1.24 million, are essentially flat compared to the same quarter last year. For the nine months ended September 30, '03, our revenues were $4.2 million versus $4.3 million for the same period last year, a 2% decrease.

Given quarter-to-quarter variability, for purposes of today's call, I'll speak mainly in terms of nine month comparative numbers, which are more representative of the financial condition of the business as a whole.

Lower product sales to our largest customer, combined with essentially no volume from two of our smaller but consistent customers for the first nine months of 2003, have resulted in a reduction in product revenue of $280,000 for the period. These two smaller customers have taken relatively consistent volumes of materials for the past several years, and relative to the company's revenue expectations, originally thought that 2003 volumes would be similar to those of 2002. This reduction was partially offset by sales volumes from Rodel, which we expect to be our second largest customer in 2003.

Nanophase had $263,000 in gross margin for the nine months of this year versus a $541,000 gross margin for the same period in '02. Analyzing a bit more, we see that the decrease in margin has been driven mainly by the increased depreciation, along with the relative proportion of what we know to be our minimum required manufacturing infrastructure to support and expand the business. As volumes grow, more of these fixed costs will be absorbed.

Based on Q3 data, annualized depreciation expense, recognizable as part of fixed cost of manufacturing, now amounts to $1.1 million. On the whole, management expects that gross margins for the year should be positive. Given our visibility, quarter-to-quarter variability in various margin drivers, such as product mix and volume, are difficult to predict. We continue to aggressively attack variable product costs.

Further, research and development expense is up about $156,000 for the nine month period last year to the same period of '03. Now this increase relates mainly to new product development cost, fueled by our NAS reactors, and the expanded palette of nanomaterials that are now available, and to a lesser extent, additional depreciation expense.

SG&A increased by $134,000 in the first nine months of 2003 compared to the same period last year.

There were a few compensative changes here. We discussed this last quarter as well, within SG&A, that are going to impact future costs. Director comp appeared to go down by $133,000, due to a change in recording convention and related one-time changes in '02. An offset to this favorable variance was that business insurance costs and legal fees, relating mainly to our current securities litigation, increased by almost $360,000. I'll speak more to this later.

On the bottom line, we lost 29 cents per share for the first nine months of this year versus 26 cents per share for the same period in '02. It should be noted that on an annualized basis, the company will now recognize approximately $1.5 million, or 10 cents per share, in depreciation and amortization expense.

This total is up $300,000, or 2 cents per share, from the annualized number of September 30th of last year. Without this additional depreciation, the loss per share for the nine months ended September 30, '03, would have been 27 cents per share.

I continue to mention that it's a passion around here that management has not let up in terms of cost containment. We've been driving discretionary costs out of the business wherever we can. Part of the cost escalations, or seeming lack of substantial cost reduction progress you're seeing, relates to those costs that are tough to control.

Insurance and legal costs continue to be difficult to manage. There should, however, be some relief with respect to insurance costs in 2004, as many insurers overreacted to various factors prior to pricing D&O and other insurance coverages for the 2003 policy year, that's the year we're in now.

Legal fees should also begin to go down now that the company has reached settlement in the current litigation. On the downside, audit fees, along with securities related legal fees, continue to climb with the advent of all the new shareholder protection legislation that has been passed in 2003 and continues to unfold in -- I'm sorry, passed in 2002 and continues to unfold in 2003.

Now let's switch gears and walk through the major categories of the September 30th balance sheet. Again, all numbers are approximate.

We exited the third quarter with $6.2 million in cash and investments. This included $2 million in proceeds from the private placement of 453,000 shares on Nanophase common stock with Grace Brothers Limited on September 8th.

Down further, accounts receivable amounted to $800,000. 98% of this balance is current, and management expects all of it to be fully collectible.

Receivables for the company's largest customer, plus those from Rodel, its largest collagen customer, and CIK, its Japanese licensee, amounted to 97% of the total.

Moving down, inventory has decreased by $140,000 between the end of '02 and September 30th of this year. For the nine months ended September 30, '03, inventory turns amounted to seven times annualized total sales.

Keep in mind that this number was five and a half turns at December 31st of last year. Also keep in mind that Nanophase is often subject to rapid changes in its customer's demand for product on a quarterly basis.

Given our current visibility, which is still not much better than 60 days, and our reliance on a few significant customers for the bulk of our volume, quarter-to-quarter inventory comparisons don't always yield meaningful information.

Inventory control is another issue we're quite passionate about around here, and we continue to manage inventory closely.

Nanophase anticipates spending approximately $325,000 in capital for new projects in 2003, along with some smaller expenditures to close projects that began last year. For comparative purposes, the company spent a total of $1.7 million during 2002.

Lastly, I would like to address the company's $1 million in long- and short-term debt. The majority of this, which is currently classified as both current and long-term, reflects funds received against the previously discussed $1.3 million loan from our largest customer, which is being paid back at a per unit of product shipped basis.

Before I give it back to Joe, remember that all of our EDGARized Public Securities filings, including financials and all of our current press releases, are accessible via our new web site at www.nanophase.com. The new site also has a lot more information describing our wide array of available nanomaterials and products and their related markets and applications. We think you'll like what you see there.

Thanks, again. Now I would like to hand things back over to Joseph Cross, our President and CEO.

Thank you, Jess.

Since Nanophase's operational progress during the third quarter, which was, again, quite outstanding, was adequately summarized in our earnings release, I would like to spend my time today discussing the company's actions to increase revenues. This is clearly our most pressing priority.

The third quarter in 2003 to date had been most frustrating in the revenue shortfall from existing customers. Entering 2003, as is our typical process, we gather forecasts from existing customers relative to purchase quantities by quarter so we can plan adequate resources to perform to expectations. This year, economic conditions have rendered our customers 2003 forecasts extremely inaccurate.

As we outlined in the earnings release, Nanophase has experienced unplanned shortfalls in orders for sunscreen nanomaterials versus 2002, abrasion-resistant flooring and catalytic converter markets for the reasons stated in the release. Photomask polish and nanomaterial dispersions have been down in the first three quarters due to softness in the semiconductor market. Had our customer's forecast actually materialized as stated entering the year, the company would be about 20% ahead of 2002's revenue rate for the first three quarters.

While all indications are that economic activity in a manufacturing sector, which is our marketplace, continues to lag, we currently believe that most, if not all, of the above mentioned markets should recover in 2004. Obviously, a loss of $900,000 year-to-date in expected revenues from existing customers, due to several economic situations, has been extremely difficult for the company to overcome during the year.

However, the company's clear priority must be to build new business. There are at least three macrotrends that should augur well for Nanophase in this regard during 2004 and 2005. Forecasts, notably from the chemical market reporter, are predicting that the chemical industry will continue to improve during this period. The chemical industry is a prime market for nanomaterials.

Secondly, several companies have announced nanomaterial initiatives strategic comparatives. Examples include Hewlett-Packard, General Electric, and Rohm and Haas. Evidence of the increased interest is demonstrated in the 70% growth of nanoengineered samples that have been requested from Nanophase during 2003 for applications development.

Thirdly, we're seeing significant increased interests in nanoparticles for personal care and antimicrobial applications from quarters that have previously been uninterested.

Continuing more from a tactical level, to augment the company's increased business development activities, Nanophase is initiating a marketing campaign composed of specific actions to obtain wider global and U.S. exposure.

First, we have created a new web site that has just been activated to increase our global exposure in multiple markets. This effort will continue over the next few months to insure that Nanophase ranks highly with the seven or so respective search engines to draw interested companies to us. I would encourage each of you to visit the new site.

Secondly, we are increasing the company's exposure at industry forums and conferences. For example, between now and the end of 2003, the company is chairing sessions and presenting papers at the Nanoparticles 2003 Conference next week in Boston, the American Chemical Engineers Conference, the Material Research Society Conference, and the NanoCommerce Conference.

Thirdly, we are creating an identity ad campaign that will be debuted and parallel with the Nanocommerce Conference in Chicago in early December. This conference is one of the first NanoConferences to focus on business and market applications rather than academia and government. We plan to use the identity ad to get our name better recognized in multiple global markets through advertising in appropriate publications during 2004.

On a specific market basis, let me summarize where the company assesses its position in focus market areas. I would like to note before I start that we're approaching this differently than in previous conference calls.

We're taking great pains to be as specific as possible, given agreements in place and the time constraints of a conference call. While my comments may be somewhat lengthy attempting to accomplish this, I think it is important to provide investors with a view of the breadth and depth of our business and market development activities.

Lastly, while we're attempting to present as complete a picture as practical, it is not possible to cover each opportunity under development, and there are some areas that we're just not at liberty to discuss.

Relative to chemical mechanical polishing or CMP, Nanophase continues to focus on specific market areas. Semiconductors, through our partnership with Rodel and separately, Nanophase is pursuing hard disk drives, rewrite heads, fine optics, photomasks, and a new area since the last conference call, color filter polishing.

As stated on the last call, Nanophase's NanoArc synthesis and dispersion technologies, these are technologies that have been all developed over the past two years, provide a critical advantage in these markets. They allow the company to engineer an evolving platform of nanomaterials, including single crystal mixed elements and highly stable dispersions, to address current and future technology nodes for semiconductor manufacturing and other noted markets, in a manner we believe is unique.

We continue to believe that CMP is a prime market for nanomaterials. It is sufficient size at $900 million annually, and slurry value estimated for 2005 to have adequate entry points, and is an area of major opportunity for the company.

In the semiconductor area, the current Rodel Nanophase slurries at various stages of evaluation are production testing at top tier manufacturers representing over 20 semiconductor fabs globally. Evaluation is also being discussed with additional manufacturing fabs and may begin testing early in 2004.

Results continue to be positive during production in this pretesting. We have been told that the Rodel/Nanophase slurry was best of breed during industry testing at IMEC, which is the European testing facility for equipment and processes that are sponsored by semiconductor manufacturers. Nanophase continues to have high expectations for this market. Again, the timing of a potential customer's full production adoption is not predictable at this time.

In parallel, Rodel/Nanophase, especially during this past quarter, have designed [INAUDIBLE] technology road map in response to market feedback to penetrate additional specific areas of semiconductor polishing. We now expect that one of these new slurries should begin market testing early in 2004, followed by others later in the year and throughout 2005. This expansion in polishing is, again, largely due to the technology available from Nanophase's NanoArc and dispersion technologies.

As we have stated before, this partnership has, and is, forming plans to introduce nanoslurry products in a significant portion of the 700 million semiconductor slurry polishing market by 2005. We fully expect this development plan to be enlarged with continuing slurry product development beyond 2005. I do not believe that I can overemphasize the importance of this partnership and this market opportunity to the company.

As we stated last conference call, the hard disk drive slurry polishing market is estimated to be about $180 million. Largely concentrating on a leading large disk drive manufacturer, we have slurry in testing on glass and ceramic hard disk for their 2004 product line that, we are told, will be introduced in mid to late 2004.

Our nanomaterials continue to provide improved planarity, high selectivity, and very low surface roughness. We're also involved with two glass suppliers to the hard disk drive industry. Again, results continue to be positive. In a secondary, but also valuable effort, we are co-developing a slurry solution for rewrite heads, but expect that the time to market is long in this area.

Continuing the hard disk drive discussion, during the third quarter, we began discussions on preliminary testing with another leading manufacturer of hard disk drives, and expect to have active development over at least the next two quarters.

Photomask, which is estimated to be about $10 million of market slurry value, is an area that Nanophase and its partner have made significant progress in during the year, even though revenues for this product lines have been down.

As calibrations for conditions in the industry, our partner has informed us that this is the worst fiscal half -- first half of a fiscal year that they have experienced in over ten years. However, during this period they have improved on the current second stage slurry polishing and obtained market-leading results, which were presented by our customer at a major photomask conference in September.

We're also expanding on this partnership and jointly developing a first stage polishing slurry. While results will not be complete until at least the end of the year, initial indications are highly positive, as we have stated. The objective is here is for Nanophase to have a complete photomask polishing line of nanomaterial dispersion products in 2004. We're well on our way to accomplishing this.

In the area of fine optics, which is estimated to have a market slurry value of about $70 million, we have made significant progress during the third -- last past three months. At least two manufacturers of optical polishing equipment indicate that they plan to standardize on our nanomaterials for the recommended slurries.

Nanophase's nanomaterials are also in testing in only six other applications at the present time, from space-based optics to [wafer-stepper] optics. This is a relatively low volume, high margin niche market that the company plans to grow in 2004 and 2005.

A new area for Nanophase, polishing color filters, received interest during the past quarter. We're working with this Asian slurry manufacturer that supplies this market, and have received small initial orders for nanomaterials to test with color filter manufacturers. We're still early into this potential application. I do not know, as of yet, the potential market value nor the timing of appreciable revenue.

In summary, over the past 12 months, Nanophase has significantly increased its market attack, and development of noted CMP markets is meeting with considerable success in all testing to date. We're quite optimistic about revenue growth in this $900 million market during 2004 and 2006.

Considering the sunscreen and beachwear market, particularly our relationship -- our partnership with BASF, revenues have been below expectations, reportedly due to the cool spring and summer in the Midwest and East Coast, (the U.S. is the world's largest sun care market, according to Data Monitor, with over $1.2 billion in annual volume), and continuing problems with the formulation relative to European and Asian formulations. Again, we currently expect this area to continue growing, and believe that sales should potentially increase in the U.S. during 2004, barring weather-related impacts.

During the second and third quarter, a major pharmaceutical and cosmetic manufacturer launched five new products containing our nanoparticles in their major brand. We have been informed that this launch is successful and trust it will add to volumes in 2004.

As we have stated, we are developing a Generation 2 formulation of nanoparticles, primarily the nanoparticle coating, to address the formulation issues in Europe and Asia. Testing of Gen 2 is under way, and about midway through testing, results are promising. BASF is still targeting mid 2004 for the new product introduction, again, primarily in Europe and Asia.

Antimicrobial nanoparticles have received considerable business development attention during 2003. As we have honed our business development strategy, we're grouping applications as either industrial or personal care.

Current application development in the industrial area includes wood preservation, surface cleaners, clear-coatings, adhesive caulks and sealants, and thermal plastic and textile applications such as carpet fibers and additives for plastic parts.

As but one example in the industrial area, wood preservation refers to pressure treated wood used in outdoor applications. As of 12/31 this year, the past chemical treatments that have been used for years have been banned by the E.P.A. because they contain arsenic and other relatively toxic materials. The wood industry is looking for suitable replacements that have adequate life, typically 20 to 30 years.

In testing with the market leader, nanoparticles have demonstrated the unique ability to penetrate the wood fibers rather deeply into the core. We have been testing three nanoparticles, one of which is a novel combination of two metals, and have successfully passed accelerated testing in the six-month inground testing. All field testing should be complete by mid second quarter 2004.

If testing remains successful, we believe that wood preservation using Nanophase's nanoparticle protection could begin in third to fourth quarter 2004. As such, this represents a major revenue opportunity for the company.

In a personal care area, application development is focused on textile applications for skin contact, underarm products, oral care products, and skin care products. We're working with major pharmaceutical and cosmetic companies on an application development for these products. Again, one example that I can only describe rather obliquely.

The textile application for skin contact is well down the development path. The potential customer has filed application patents, toxicology testing has been completed, and clinical testing is currently under way. We have been informed that this product is expected to begin launching during mid 2004.

In each category, industrial and personal care, Nanophase is working with several major companies that serve these markets. Based on information from potential customers in these areas, we would expect to begin shipping products for some of these applications starting 2004.

Relative to coatings, Nanophase has application development abrasion-resistant for polycarbonate plastics, a harsh environment, abrasion-resistant electronics application, automotive coatings for both abrasion and UV resistance, overprint varnishes, and other UV curable applications where color and gloss are critical. And lastly, at consumer abrasion resistant application.

In regard to the latter, as an example, Nanophase is working closely and very actively with a global cosmetic company in co-development of the product. The potential customer has indicated to Nanophase that they intend to launch this product early in 2004.

Relative to catalytic or catalysis markets, while our current catalytic converter revenue has been less than planned, Nanophase has made strides in other areas. The company has linked up with a major automotive OEM to develop nanomaterials for catalytic converters. That work is underway and appears promising at this early stage. The company has also initiated activities with a major catalytic converter manufacturer to explore the use of nanoparticles for diesel particle traps.

In a second area, while this is a longer-term project, Nanophase is beginning work with a major chemical company to develop nanocatalysts for specific chemical synthesis. This is a rather significant breakthrough for the company.

We've been trying to find a partner for chemical catalyst synthesis co-development for two years to demonstrate the value of nanoparticle technology. While the gestation time for these projects is lengthy, these applications represent, again, significant revenue opportunities. Then, Nanophase has some opportunities that do not fit neatly into any of our stated focus markets. Two brief examples for your information.

Nanophase is working with a global OEM in a power distribution area to use nanoparticles and composites to generate nonlinear dioelectrical properties in electrical insulation. This concept has been proven, patent applications have been filed by the OEM, and potentially represents a very significant revenue opportunity for Nanophase.

To our recent announcement, we're also working with the supplier to the medical industry with our Nano bismuth oxide on its use in plastic medical appliances. In these applications, indications are that the material provides desired x-ray opacity, while mixing well with the plastic materials during processing and device production. Again, early indications are positive, and we are continuing this effort.

As an aside, we have also received several inquiries from companies based on the announcement which was picked up in several technical publications, and are having ongoing multiple discussions.

And lastly, we have development efforts in longer-term markets such as fuel cells and thermal spray that have large revenue potential but require significant development before revenues can be expected.

In summary, the company remains focused on five major market areas: Antimicrobial applications for personal and industrial products; personal care, including sunscreens; abrasion and scratch resistant coatings; catalysis; and polishing markets.

The company's business development and marketing efforts have been significantly improved and expanded throughout 2003. We believe that our efforts are well-directed, robust, and cover opportunities that offer significant revenue potential. We fully expect that these markets, and the additional opportunities mentioned previously, will drive the company's revenues.

That concludes our prepared remarks. We're now available for any questions.

At this time, I would like to remind everyone, if would like to ask a question, please press star, then the number 1 on your telephone key pad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Donald Hutchinson of Merrill Lynch.

Good morning, Joe.

Hey, Don.

I, unfortunately, didn't get a chance to listen to the early part of your presentation. But I've -- if you've answered this, pardon me.

I'm concerned about the situation with Rodel. And now that this contract has become a nonexclusive one, based on the fact that the orders have fallen short of the required minimums, I understand also that Cabot has their first client actually in production with metal oxides and shallow trench technology. And they are apparently progressing quite nicely.

I would like to know after -- you know, why it is that after a year or so of testing in some of these places with Rodel, that there hasn't been any adoption? And has there been any loss of these -- this testing to Cabot's product? And what is the potential or the actual competitive position versus the product that Cabot has in oxides?

Let me see if I can answer that. In the European testing, it was done by IMEC, as I stated in the conference call notes, the Rodel/Nanophase slurry came in first place. Cabot's didn't make it through the test. That's what we've been told.

Relative to Cabot's acceptance in the marketplace, Don, that's -- your information is entirely different than our information. Our information is that their slurry is not performing well in the marketplace. All of the major manufacturers of semiconductors -- I mean it is a 'who's who' list, are evaluating the Rodel/Nanophase product.

The evaluations are taking longer than any of us had expected, quite frankly. We expected one large semiconductor fab to go sometime the end of this month, early to mid November. We received word this week that they're delaying that decision, and we think this is good news, frankly.

They have found that it works on another product line, and they're evaluating on a second product line. They want to finish that evaluation and do a larger conversion than just the STI. So, you know, our information is not quite the same as your information relative to the performance of the Cabot material versus ours.

Lastly, we do have an exclusive with Rodel. We've decided to maintain that exclusive. Rodel, again, has a global sales team, and you know, most -- a lot of semiconductor manufacturing is not in the United States. There is an appreciable amount in Asia and Europe.

And secondly, there have a global technical customer service organization, which is vital if you're going to sell in this marketplace. And lastly, they offer more of a solution approach than Cabot in that they sell pads, conditioners, and now slurries.

And you know, don't forget that Rodel's backed up by a $6.5 billion chemical company called Rohm and Haus. And if you go to the Rohm and Haus web site, you will find that slurry manufacturing and the slurry market is one of their prime strategic directives. So, we think that this is a very good partnership.

The client that apparently has just adopted the Cabot product also adopted the Cabot polishing pads and the slurries together, apparently. That information, by the way, came from the Cabot conference call this morning.

Don, I don't have any information on that. I'm not denying it. I just don't have any information on that. I will check and find out.

That's all I've got. Thanks, Joe.

Thanks, Don.

Your next question comes from Bruce Brewster of Brewster Asset Management.

As usual you --

Bruce, we can't hear you.

Yeah, we can't hear you.

I'll speak up. Can you hear me now?

No.

No.

No?

No, your -- the connection's really bad. You sound like you're long, long way away.

Well, I am! I'll speak even louder.

Okay. We're trying to hear.

Okay. As usual, you have a lot of products in the pipeline. I would like to understand two of the products because they're so important, the antimicrobial and the wood preservative.

Okay.

What is the active ingredient in those?

Let me -- I can't speak -- I would prefer not to speak to the active ingredient. What the --

Is it something you've announced already for other products?

Yes.

Okay. So, it is an established nanoparticle that you're making now?

It's an established nanoparticle that we have metriced on capability.

Okay.

Okay. Was that your only question?

Yeah. Well, I'd like to know what it is because I'd like to know if it's really -- I mean, I don't think putting zinc on preserving wood would help. I can't imagine what would -- those instances.

Actually, both in the states and now in Europe as of this week, we have people looking at zinc oxide for wood preservation, primarily, -- they're making wood products now, Bruce, where the color goes all the way through the wood. And nanoparticles penetrate wood very deeply to the core. They prevent fading of the stain. According to the customer, okay?

Hm-hmm.

The other -- there are two other particular particles that --

Oh, it doesn't -- it doesn't protect the wood? It just changes its coloration character --

No. It provides both UV protection -- and zinc oxide is also antimicrobial.

Oh, okay.

Okay. So, it does provide a very persistent long-term antimicrobial effect. And it's also -- I think it's a bacteriostat in this application, also. But there are other particles that people are working with. As I stated, these materials have passed accelerated testing, which is an aging test, in this application. That they're in the ground in Florida. They've passed the six-month test. And the one-year test comes out of the ground, like towards the end of the first quarter.

This is a very interesting thing to the -- to our potential customer, because the -- with the E.P.A. outlawing arsenic and chrome, which were the two primary ingredients here -- previously, they haven't -- while they've got an alternative right now, the alternative has some problems. It has some problems both in manufacturing from a VOC standpoint, and has -- and apparently has problems in the field relative to life.

What is the alternative?

Well, that's why they're so interested in nanoparticles right now. There are -- again, materials we're providing seem to work in this application in the ground, to the life expectations that that market requires. I don't want to talk about exactly which materials on this.

Okay. What is the alternative?

They don't -- right now, they don't -- to the best we know, and we were just there, they do not have a good alternative. They have a solution in place. In fact, the customer we're working with purchased the company to obtain a solution only to find out that the solution is: A, expensive, it has some processing problems, and apparently doesn't have the life in the marketplace that's required.

My carpenter says, this is the arsenic type, don't use pressure-treated wood indoors. With your solution, could you use it indoors and outdoors?

Yeah, because there's no VOCs, there's no volatile content coming off.

I thought it was the arsenic that was stopping it for using indoors. But maybe not. Okay. But you can use it indoors and outdoors, which would be a big plus. Thank you. Question has been answered.

Thank you.

Your next question comes from Nicholas P., a private investor.

Good morning, Joe.

Good morning.

By the way, just a thought on that last call. I think the only thing they're still allowed to use is wolman salts, and they're terrible. They don't last but just a few years, and the wood starts rotting immediately. If you have a railroad tie around your patio, you can just watch it melt. There really isn't anything out there much too satisfactory.

The question I have is just a quickie. Something got a pretty good article in the business press recently stating that a company called Five Star Technologies had a new controlled flow cavitation process creating nanoparticles. And I wondered if it had any -- what were its advantages or disadvantages versus our NanoArc technologies?

We thought -- we saw the same report. We do not know what their technology is. We have a suspicion -- again, we don't know. But they're a relative newcomer to the marketplace. So I really can't answer that.

Okay. Thank you, very much. That was it.

Your next question comes from Tim Kelly of Dodie Management.

Could you expand on, kind of, the competitive landscape, especially when you're talking about new product market opportunities? Are most of the companies working with you exclusive, or are they working with five or eight different nanotechnology-type companies?

Most of the people we're working with are working with us exclusively. They're -- despite what you read in the paper, we have not -- we have not encountered yet somebody who makes nanoparticles in any kind of commercial quantity and quality. There are a lot of people say they do -- we have not seen that -- actually, we had a customer in here -- I'll tell you a story.

We had a customer in here from Europe that we have a large-scale development effort about to start with. And they did a survey of 800 companies, globally, that purported to be nanomaterial companies.

Out of the 800, they physically surveyed 60, including us. According to them, we're the only company they saw that makes nanoparticles in any kind of commercial volume. And we're the only company in the nanomaterial world that they encountered that was really a company and not a lab. So, that's feedback we got for what that's worth.

Okay. Thank you.

Once again, if you would like to ask a question, please press star, then the number 1 on your telephone key pad.

Your next question comes from Doug Allison of UBS.

Hi, Joe.

Hi, Doug.

Again, sounds like very encouraging, but seem to be pushing the revenues out into the future again.

On a different subject, the -- I don't know if you want to, or if you could though, review the patents -- patent pendings. And maybe you don't want to talk about these -- the manufacturing secrets. We haven't seen many announcements on new patents. Patents pending applications?

The patent office has been slow. We have two -- we have one or two patents that we expect that -- we've been thinking -- we have two patents -- we -- that should already be out, frankly. They've been approved. They have not been officially released. But they will be released between now and the end of the year.

We would rather not comment on those because -- we hope. I've just been advised, we hope. We can't predict what the patent office -- we have paid the money for -- to get them released. That's all I can tell you, okay?

So, they ought to come out between now and the end of the year. I would rather not comment on what that technology is until the patent's issued and in the public.

Okay. -- with Rodel and the CMP polishing, I think you mentioned that there were 20 semiconductor fabs that were --

There's -- no. We're -- there -- what I stated was that Rodel -- that this product is being evaluated by all the top tier manufacturers. I mean, I can't tell you the names because that wouldn't be appropriate, but if you saw them, and if you had electronic industry experience, you would recognize these as the top tier names. And they represent, actually they represent 23 fab -- different fabs. Okay?

It's my recollection in the past conference call that you were number 12. Is that -- ?

Well, that -- no, what we said last conference call, I believe, that -- it was between -- the introduction was 10 to 12 of the top tier semiconductor manufacturers. So you can do the math. And between those 10 to 12 guys, they have about 23 fab operations in different parts of the world.

So, it isn't a doubling in the interest from different parties then?

No. There have been people who have joined the fray.

Okay.

And there are some people -- we have discussions with new folks in early to mid November, and we're hoping they'll join the fray also.

Thank you.

At this time, you have no further questions. Are there any closing remarks?

No, not particularly. Thank you for attending our conference call. And we'll talk to you again next quarter. Thank you.

This concludes today's Nanophase technologies conference call. You may now disconnect.