Solesence Inc (SLSN) 2004 Q3 法說會逐字稿

Good morning, my name is Brook (ph), and I'll 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.

(OPERATOR INSTRUCTIONS)

The words "expect," "anticipate," "plan," "forecast," 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 limitation a decision of the customer, 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 conflict, and other risks indicated in the company's filings for 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 introduce Mr. Joe Cross, president and chief executive officer of Nanophase Technologies. You may begin.

Thank you. Welcome to the Nanophase conference call for third quarter of 2004. I will be hosting the call today and providing an overview of the company's progress during the third quarter in context of progress throughout 2004 and preparing the one in 2005. Jess Jankowski, Nanophase's CFO, is not available, so I will be covering the relevant financial information in his place. Changing our normal agenda just a bit, I've asked Dr. Ed Ludwig, our vice president of business development, to comment on the company's business development and marketing initiatives outside of our core market partners, which I will cover, relative to driving Nanophase's revenue growth.

To begin the discussion, let me cover the relevant financial aspects of the third quarter as well as those financial topics that we think may be of interest to investors. Obviously, the financial details for the quarter were released on October 28th, so I do not intend to dwell on or review all the details. All the numbers discussed today are approximations. Revenues for the third quarter of 2004 were $1,377,000, up $138,000, or 11 percent compared to the third quarter of 2003. Comparing the first nine months of 2004 versus 2003 and ignoring the sale of the PVS reactor equipment to (technical difficulty).

There was a cut-out there for a second, so I'm going to start all over with that last paragraph -- comparing the first nine months of 2004 versus 2003 and ignoring the sale of PVS reactor equipment to CI Kasei, our Japanese licensee in 2003, which is an irregular event and not in Nanophase's main business, revenues are up about 6 percent. Reviewing revenues -- sales of sunscreen and personal care nanomaterials have been above expectations by 13 percent year-over-year, but sales into CMP via Rohm and Haas are down about $800,000 in product revenue compared to 2003. The reason is the inventory situation at Rohm and Haas due to the unexpected lengthy delay penetrating the CMP market. I intend to discuss this in detail later in the call.

Gross margin of our product sales is modestly positive, somewhat resulting from our continued efforts to reduce manufacturing costs but still impacted by the need for additional volume to absorb manufacturing overhead. Note that depreciation and amortization amounted to 6 cents per share of the company's 27-cents loss for the first nine months, or about 22 percent. Relative to the balance sheet, Nanophase ended September with $13.9 million in cash and investments compared to about $5 million at the end of 2003. This increase is primarily due to the $10 million equity investment from Altana Chemie in March of 2004 and the 2 million warrant exercise by Grace Investments in September 2004. Grace, as you may know, is the company's largest institutional investor.

Our accounts receivable remains well under control with 97 percent new buy our largest customers, BASF, Rohm and Haas Electronic Materials, CI Kasei, and Altana Chemie, as announced. Nanophase went through the shelf registration statement that the company had previously filed with the SEC. Based on market conditions, current cash and investment position, and the company's business models through 2006, we do not currently expect any further equity to fund planned growth. Obviously, this is quite depending on product mix and capital equipment needs, which may be different than current plans as we go forward.

Lastly, with respect to corporate governance, let me summarize the company's efforts regarding compliance with Section 404 of the Sarbanes-Oxley Act of 2002. To comply with the rather intricate and detailed requirements of this act, we have engaged an outside consulting firm to review and augment, where necessary, our internal control systems and lean staff. Although management has always believed that Nanophase has had solid internal controls in place, especially for a company our size, SOX 404 codifies specific internal control requirements that all companies must satisfy. This will amount to Nanophase having an internal control system that, in a pre-SOX 404 world, would be what one would expect in a much larger company. Internal controls to meet SOX 404 will increase the company's costs with increased audit and legal fees, since the act actually has additional audit requirements each year.

Looking forward to the rest of the business, I would like to cover four specific areas -- first, the company's intellectual property growth, then operational engineering progress, followed by progress updates on our market partners, BASF, Altana Chemie, Rohm and Haas Electronic Materials, CMP Technologies and, lastly, business development management, which will lead into Ed's comments.

The intellectual property during the third quarter -- Nanophase filed three new U.S. patent applications. The first is entitled "Service Treatment of Nanoparticles to Patrol Interfaces," and relates to our expanding nanoparticle coating and surface-treatment technologies for applications ranging from sunscreens and personal care to polymer additives for trailer transport and mechanical properties. We believe that this is critical technology for the company and will prove to be increasingly valuable in the future.

The second is entitled, "Cosmetic Formulations Comprised in Zinc Oxide Nanoparticles and Method of Manufacture," which we filed jointly with BASF. This relates to the second-generation sunscreen nanomaterials that we have discussed and will update later in the call.

The third is entitled,"Enhanced Scratch-Resistance of Articles Containing a Combination of Nanocrystalline and Metal Oxides Polymeric Dispersing Agents and Service Materials," which we filed jointly with BYK Chemie, a company of Altana AG. This patent describes the new and rather exciting technology to increase wear and abrasion resistance on our improved mechanical properties for coatings and sealants.

Additionally, during the quarter the company increased its foreign pats on patent applications by a total of eight. As a result, Nanophase's patent IP position now stands at 25 U.S. patents and patent applications, and 49 foreign patents and patent applications. The company has now grown its U.S. portfolio of core patents and patent applications over 150 percent since 2000.

Turning now to operations and advanced engineering -- we continue to constantly improve the company's manufacturing to reduce costs and grow variable margins. During the third quarter, we completed the bulk of manufacturing implementation that results in a 25-percent increase in reactor output or production rates for the company's highest-volume products. Year-to-date we have achieved a 21-percent reduction in variable manufacturing costs and high nanomaterials, which we expect to become increasingly visible, over time, in our financials, especially as volume grows in 2005. In a parallel effort, Nanophase has a rather aggressive new nanomaterials development schedule based on market pull, not technical pull, from our current market partners and business development opportunities. We view this as a vital activity for the business to position new nanoproducts that are expected to drive future revenue growth.

An example of this, the 20-nanometer Lumina that we announced earlier in the year is already in testing through BYK Chemie for abrasion-resistant coatings and is demonstrating early positive results. We expect to be announcing initial availability of several new nanomaterials over the next three to six months.

Moving to sales and revenue growth initiatives with our current market partners, continuing progress was made during the quarter. Let me start with and describe Altana Chemie, so our investors can understand the importance of this relationship to Nanophase. Altana Chemie is one of two major companies of Altana AG, which is a $3.5 billion pharmaceutical and specialty chemical company. Altana Chemie, with sales of about $1 billion is a highly successful and fast-growing specialty chemical company organized in three divisions -- Altana Additives and Instruments, Altana Coatings and Sealants, and Altana Electrical Insulation.

Altana Chemie, over the last 10 years, has grown sales at a rate of 18 percent annually while maintaining operating margins of 20 percent EBITDA. Let's review each of their major divisions that are developing new products based on Nanophase's nanomaterials.

In Altana Additives and Instruments, BYK Chemie is a world leader in additives for the coating and plastic markets. Typically, BYK additives for coatings and plastic formulations provide significant improvement and performance and quality improvements at low concentrations in a final product. BYK has eight regional labs and production plants throughout the world with sales and distribution capabilities in 100 countries. Altana Coatings and Sealants has the most comprehensive product portfolio in packaging coatings and related products. It is considered number one for polisher compounds and number two for can end sealants. They are also a leader in overprint varnishes and a major supplier for foil and coil coatings.

Altana Electrical Insulation includes wire enamels, impregnating resins, and compounds for encapsulating electrical and electronic devices. Pausing for a second at this point, as you consider the three divisions, contemplate the market reach this partnership offers Nanophase. Each division of Altana Chemie is developing products for their respective markets based on Nanophase's nanomaterials. Their new product performance needs are also driving our new nanomaterials development program. This is an added plus with Altana Chemie and all of our partners, for that matter, and that our new nanomaterials development efforts are being market-driven by defining market needs.

For instance, BYK Chemie has now announced four products in their new Nanobook line of additive ingredients and incorporated our nanomaterials -- two for the coatings industry and two for the plastics industry. We believe that BYK has send approximately 500 samples of these new products to potential customers for testing. There are about 22 additional formulations and testing, and we expect some of these to result in products. Additionally, there are other formulations earlier development for a variety of potential applications, such as automotive clear coatings, which is currently a major development effort by BYK and Nanophase. BYK Chemie is actively developing and marketing these products as well as testing lab formulations and applications throughout Europe, Asia, and the U.S. Developing Nanobook products and growing their market share is a major objective for BYK.

Considering that our partnership was formed in March of 2004, the progress and movement toward the market has been surprisingly rapid. The new Nanobook products -- products and lab testing and those being developed, along with a patent application, have all happened in about six months. Product development introduction will also obviously continue during 2005 and 2006.

As announced, we spent last week supporting BYK Chemie at the International Coating Exhibition known as ICE 2004, which draws an international audience of potential customers and is a major event in the industry. BYK and Nanophase worked side-by-side introducing the new Nanobook products and discussing potential applications with several companies. Response, interest in nano-enabled coating ingredients, and the business development opportunities were excellent. We expect significant follow-up activity resulting from the exhibition.

We continue to be quite optimistic about revenue growth by Altana Chemie for nanomaterial-based products and the additives, coatings, plastics, sealants, and electrical electronics markets. These are large global markets, and we are fortunate to be a partner with a known market and technical leader for demanding applications for nanomaterials to bring value. We are also working closely with two other divisions of Altana Chemie Coatings and Sealants and Electrical Insulation. We expect nanomaterial-based product introductions in both of these in the near future. Initial Altana Chemie revenues have started, and we expect ramping to continue during 2005 and accelerate in 2006.

BSF -- BSF continues to make progress. We hold an executive-level business review with BSF during this last quarter and believe that both parties are satisfied with the progress to date and have formulated market and revenue expansion plans for the future. Relative to the current sunscreen nanomaterials, volume is continuing to grow as demonstrated by the 7-percent growth observed over the last 9 to 12 months, and we expect that trend to continue. BSF has stated they intend to essentially re-launch the Z-Cote HP1 and market additional customer attributes for the sunscreen and personal care market. Such a concentrated marketing action by BSF may increase the product growth rate over that currently planned.

The second-generation sunscreen nanomaterial, which is based on Nanophase's patent-pending coating technology mentioned earlier, still remains on track and plan at this time, and we are still expecting to ship initial market quantities during the last quarter of '04. BSF has established a detailed market launch program that culminates around May '05. We expect this new product to add to revenues during 2005.

BSF is also in the final stages of clinical testing for a new personal care product and currently expects to launch the product during early 2005. The potential for growth in this product is promising, and we expect the resulting demand for the company's nanomaterials will begin during 2005.

In summary, BSF continues to be the company's largest current customer, and we believe between the three product areas just discussed, two of which are new, there is adequate reason to expect material revenue growth in 2005 and 2006.

Rohm and Haas electronic materials, CMP Technologies, I will refer to as R&H from here on, also continues to make progress penetrating the STI and SON semiconductor market node with slurries used in our nanomaterials. Rohm and Haas has made great strides in proving their slurry chemistry for the initial generation 1 introduced to the market in 2003. Generation 2 chemistry, which is now in market evaluation, is demonstrating positive results and continuing semiconductor applications. Rohm and Haas currently has one customer that appears to have reached production adoption and is expected to be in actual production using the slurry during Q4 of this year. Several other customers have advanced our testing stages and are getting closer to production adoption.

Significantly, we believe, Rohm and Haas has recently developed a test that generation 3 slurry chemistry, which is demonstrating notable performance improvements over gen 2 and reduced defect levels, improved planarity, and greatly improved condition characteristics. Rohm and Haas expects to be introducing gen 3 to the market, focusing on key semiconductor targets during the fourth quarter. Rohm and Haas is optimistic that generation 3 chemistry will increase the adoption rate and will use the time-to-market for potential customers, going forward.

Recognizing both the reality in the market adoption rate as it is, and a real market synergy of the Rohm and Haas and Nanophase relationship for the CMP market, going forward, we have recently mutually agreed to amend our corroboration agreement. The amended agreement retains a mutually exclusive relationship and requires minimum base Rohm and Haas revenues to Nanophase to increase approximately 40 percent in 2005 compared to 2004 followed by a higher revenue growth for 2006. Despite the difficulty Rohm and Haas has encountered in market penetration speed, we are seeing gathering momentum and continue to believe that CMP, as a market, offers a major revenue growth opportunity for Nanophase. We believe it is important to take a longer-term perspective for this market, which offers increasing revenue growth opportunities over the next decade.

In summary, we believe that our three market partners, BSF, Altana Chemie, and Rohm and Haas, provide a solid base of growing revenue opportunities towards the company's goal of reaching EBITDA breakeven. I make this point simply to demonstrate the strength of our current partners, the breadth and size of the market served collectively, and a revenue growth potential the management expects.

Moving to business development and new revenue growth opportunities for the company that are in addition to our market partners, let me address a couple of points before I turn this over to Ed. Since I assumed direct responsibility for business development and sales late in 2003, we have made several changes to improve our tactics and methods. During 2004, we have been driving to improve the business development process, spend more time managing and understanding details, developing large strategic relationships with our market partners, and identifying and increasing the number of good opportunities. We have also become significantly more active in the external environment in the emerging nanotechnology industry, which has led to additional opportunities.

Specifically, Ed and I and the rest of the management team have worked hard at qualifying and quantifying each business development opportunity. Part of the former for us is to understand whether an opportunity is a technical or a market pull. We will only focus on market pulls. We have been misled at times by a technical pull disguised as a market pull. We have also developed a methodology to quantify each opportunity relative to the probability of both technical development success and ultimate market success in terms of value expectations. This allows us to weed out those opportunities that do not meet reasonable criteria and focus on more optimal situations. In parallel, we have developed a process to measure development progress of each opportunity through a modified stage-gate approach that helps us to manage the process better and focus management attention where it is needed.

So at this point in 2004, we have been able to significantly expand the number of opportunities that we are addressing by almost a factor of 3, using the same resources by better management and focusing on synergistic opportunities. While business development opportunities may disappear as they progress through the normal cycle from development to commercialization and this is normal and expected. The larger the number at the top of the funnel, the more that are expected to reach fruition and become revenue producers. Without a doubt, we are seeing the most robust opportunities in both quality and quantity in the company's history, and the list is growing.

At this point, I will turn the business development discussion over to Ed.

Thank you, Joe. Indeed, this is an exciting time for Nanophase. Never before has the company had the level of business development activity that we are experiencing now. There are currently over 100 qualified opportunities that we are pursuing, which are in various stages in the development process. These include initiatives with new partners and prospective partners as well as new initiatives within existing partners and customers. Since the vast majority of our activities are pursued under nondisclosure agreements, we are not at liberty to discuss them in detail.

Before I describe in general how we approach business development in certain key applications areas, let me first tell you about an addition we've made to our business development group. In August of this year, Bo Kowalczyk joined our group as market development manager reporting to me. Bo spent about a year with Nanophase as our customer services manager to learn the business prior to being promoted into his current position. With a master's degree in chemistry and experience in the biotechnology industry, Bo's background includes technical project management, market development, and sales. We are very pleased with this solid addition to our business development team.

Within the past nine months, we have implemented a stage-gate process -- excuse me -- a stage-gate business development process. The first stage is to draft and scrutinize what we call a preliminary value proposition or PVP. We are hit with a variety of ideas each day, and we use the PVP to screen out which opportunities have the highest chances of success. Simplistically, the PVP first starts with a proposed market need and follows with a statement that indicates why a customer or a partner would use our nanomaterials versus the commercial -- other commercial products or technologies.

To receive a high priority, there would typically need to be a balance of properties that only nanomaterials could satisfy such as a combination of scratch resistance, clarity, high gloss, and formulation compatibility. Discipline is also applied to study the application and market sufficiently to ensure that the size of the opportunity justifies the effort needed for success. As mentioned, we have over 100 identified opportunities. These run the gamut in terms of where they lie in our stage-gate process, but they all have reasonable PVPs. The fact that we can readily produce a wide compositional palette of nanomaterials in commercial scale and in high quality, plus be able to offer the products not only as solid materials but also as coated products and/or fully stable dispersions in various media gives very good support to the PVP.

By being able to offer the products in a readily usable format, we can typically get into the evaluation stage more quickly and have a considerable competitive advantage. I should also point out that we have come to realize that Nanophase's ability to prepare coated particles at stable dispersions of nanomaterials in such a broad compositional palette is unique to the industry.

Our typical channel to market is through partnerships with companies that occupy the distribution channel and value chain for the application of interest. In addition, we look for partners with whom we can have a collaborative relationship enhancing the chances of success. We like partners with an identified internal champion, sense of urgency, and the ability to influence and use decision-makers.

We tend to stay clear of applications that involve a very long time-to-market or low technical feasibility. Likewise, we are hesitant to work with a partner who is not collaborative or does not have support within the organization at a level necessary to ensure its efficient resources are applied to the development program. Selecting the right partner is critical. To a large extent, we must rely on our development partner to conduct formulation and end-use testing. Because we cannot control our partners' priorities, it is wise to have many different opportunities so that we can balance priorities based on various partners, speed, and level of commitment. In a collaborative fashion, we work closely with our partners to fine-tune nanoparticle formulations, coatings, and dispersion characteristics to meet the application demands. The same collaborative approach is at the heart of our success with BASF and Altana, for example. It may take several iterations until the appropriate balance of properties is realized. As a result, timelines can often be extended from what was originally estimated.

If we see that there is reasonable technical feasibility with good collaboration and a sound business opportunity, we continue to drive toward the goal. We are not timid about dropping opportunities when there is not a reasonable chance of success, allowing us to keep our valuable resources focused on the most promising activities.

Now let's discuss some examples of opportunities that we expect to come to fruition in the near future, keeping in mind that I cannot disclose company names and, in some cases, products and applications. I am very excited about a new opportunity that we expect to become a commercial reality within the near term. This is expected to result in revenue in 2005 of at least $1 million and has the potential to become a $3 million to $5 million business annually. We have a signed, non-binding letter of intent, which discloses expected volumes over the next couple of years, and we currently have manufacturing capacity and all equipment in place to satisfy this opportunity. The customer has accomplished the necessary skill of procedures and is awaiting approval from their end-user. We are now a registered vendor for this customer, and once end-user approval is given, we expect to receive a PO for the first shipment. We have been assured that this is a question of when, not if, the business will proceed. While I cannot disclose the product application or customer, I do want to point out that this development program was initiated less than one year ago. When there is a well-characterized need and a strong market pull, depending on the application area, the timeline can be relatively short.

Powder metallurgy is a new and exciting area for Nanophase. We have a close collaborative relationship with a local company and have jointly developed a metal coating formulation that provides good lubricity and excellent corrosion resistance in one step. The automotive and heavy equipment industries represent key applications areas for this product, and our partner has many of the necessary end-user relationships to move this forward. In this example, we envision that Nanophase will be a co-supplier of the final formulation as opposed to a raw material supplier to a formulator. As such, we will participate in ensuring product quality and consistency as well as being positioned higher in the value chain.

The area of industrial anti-microbial applications, I believe, offers a considerable growth opportunity for Nanophase. We have proven feasibility in anti-microbial fibers for carpet applications but, for now, that application is not moving forward. However, we have newer opportunities in anti-microbial textiles, both woven and non-wovens, for a variety of specific applications that are under development. For certain types of products, these have proceeded to the clinical trial stage. While timing is difficult to predict, it appears that this area, in general, is well supported as a market pull.

Personal and healthcare applications continue to be important growth areas for Nanophase. Outside of BASF initiatives, we have several initiatives in place for very large companies where technical feasibility has been demonstrated. These represent global opportunities with companies that already have market presence and distribution channels in place. Two companies are moving programs into the product formulation stage in anticipation of beginning clinical trials followed by test marketing.

We have begun initial forays into medical appliances, again working with large companies active in this market. Our products can offer anti-microbial character, x-ray opacity and, in some cases, we believe that we can use our products to provide an ultrasound signature for certain types of products. Investigations in this market area are in an early stage, but there appears to be opportunities.

We have also begun initial investigations into the use of our nanomaterials in electronics. For example, in embedded passive devices, screens and displays, and similar applications. Once again, this initiative is in a very early stage.

A second and exciting activity that we are employing within business development is what I refer to as publicity and networking. Recent escalation of activity such as tradeshow and technical meeting participation, cold calling at large companies, and networking through our board of directors and others are encouraging. Over the past 18 months, we have become much more active at tradeshows including sponsorships, exhibits, technical and business presentations, and technical poster sessions. For example, last month we were Gold sponsors of Nanocommerce 2004 in Chicago. This provided a high level of publicity, and Nanophase was also an exhibitor. At this conference, Joe presented an overview of Nanophase and chaired a panel discussion focused on nanomaterials in personal care products.

In 2004, we actively participated in Nanotech 2004 in Boston, the Nano Economic Congress in Washington, D.C., the Nano Business Alliance 2004 in New York City, and others. In 2005, we plan to participate in at least eight nanomaterials conferences. How does such tradeshow participation and associated publicity help Nanophase? Most major specialty chemical companies either have an active internal nanomaterials program or are actively seeking partnerships in various applications areas. For these reasons, large companies are heavily canvassing nanomaterials tradeshows. Recently, we have made extensive inroads into many Fortune 500 companies and, in fact, into several Fortune 50 companies. Our full-scale manufacturing capabilities and our ability to customized products, along with the key partnerships that have publicly disclosed, puts Nanophase in high regard with companies looking to begin or augment nanomaterials programs.

Many of these large companies are eager to work with suppliers of nanomaterials that can be incorporated into their products, and they represent a solid channel to market. A key outcome of this networking is that we will be able to participate in applications for our nanomaterials that we probably would not discover independently. Networking is a very important route for us to publicize the commercial capabilities of Nanophase to as wide an audience as possible.

As an example, we began a dialog with a nanotechnology initiative inside a Fortune 50 company in April, and we currently have three distinct programs underway, all of which are market-driven and are being pursued with very good collaboration. With our prowess at exploiting applications that are derived from market pull, combined with the new introductions that we are achieving through publicity and networking, I believe that our overall level of opportunities will continue to grow, and many will reach commercial fruition.

That concludes my comments on business development activities, and I will now turn the meeting back over to Joe.

Thanks, Ed. Over the last three years or so, Nanophase has been focused on expanding its nanotechnology to reach markets, improving its operations to reduce costs and provide consistent, high-quality products to customers, and expanding the company's intellectual property. We have made progress in each of these areas over that time. During 2004 we have taken the same approach to improve our business development sales processes. We believe that we have made significant progress in that regard during the year.

More than any time in our history, we are optimistic about revenue growth, specifically for 2005 and 2006. Clearly, we have established a strong group of market partners, each of which is a direct channel to broad markets with strong opportunities for nanomaterials. We expect additions to this group on a selected basis.

Also, perhaps more than at any other time, our business development is very robust. The opportunities in the business opportunity funnel are the best we have seen in both quality and quantity, and the opportunities continue to increase. Both are the result of efforts by our market partners and our own business development initiatives. Management is keenly focused on solid revenue growth for the company and reaching EBITDA breakeven. Again, we are optimistic about revenue growth over the next 24 months.

That concludes our formal discussions. We are ready for any questions you may have at this time.

(OPERATOR INSTRUCTIONS)

Your first question comes from Doug Allison with UBS.

Hi, Joe. The 100-or-so business development opportunities that you mentioned -- how many other companies, outside of Rohm and Haas, BASF, and Altana, does that include? Do you have a number that we can focus on?

Seventy-five.

Seventy-five different companies?

Yes.

Huber was missing in your press release. Was there something that --

No, we're still continuing development with Huber. We're working on one product now. We expect to basically finish that development on or about the end of the year. I mean, it is a development project, so sometimes timing is hard to guess, okay? We have conference calls with Huber about every other week to go through all the details. Huber started clinical testing now on the first samples that we sent them, so that's progressing well and, again, we expect to finish the development around the end of the year. It might slide over in the first quarter -- it's just hard to say, and we expect to start the second development program during the first quarter.

Okay. Rohm and Haas has a big coating division -- are you doing anything with Rohm and Haas Coatings?

We're not doing anything specifically with Rohm and Haas Coatings other than through Altana. Again, we have a relationship with Altana. Before we formed the relationship with Altana, Doug, we did talk to Rohm and Haas. At the end of the day, looking at attacking the coating marketplace, Altana is the leader to BYK Chemie. In coatings and in greens that go into coatings and plastics, and there's a lot of good reasons to put nanomaterials in the ingredients and not in the coatings, and a lot of which are technical. BYK Chemie also tends to address the higher-quality and performance areas of the coatings marketplace, which, again, is a perfect spot for nanomaterials, because that is not as price-sensitive, say, as down at the lower end of the pyramid in the market, where price is the driving parameter for the coating rather than performance.

Okay. Rohm and Haas expanded their slurry manufacturing by 3 million gallons per year, they said, because of the strong demand from top-tier semiconductor companies in U.S., Europe, and Asia. For new copper and barrier solutions, the acidic and non-acidic for 90 nanometers and 65 nanometers. Is that your product or is that some other --?

Let me answer that this way -- Rohm and Haas, in the CMP group, is making a large drive in semiconductor slurries throughout the entire marketplace. That includes copper, tungsten, STI, SON, and the new technology nodes that are coming down the path. I've actually seen Rohm and Haas's total development plan for the next three to five years. Actually, we review that once a quarter with them. So they have a big push into slurries throughout the entire spectrum. They now sell silica slurries not unlike Cabot Micro into the marketplace for several applications, and they have a significant business in that area, and that business, honestly, is growing for them. We do not participate in the silica part of the slurries. I do know, because the CEO and I talk -- of Rohm and Haas -- and I talk all the time that about $800,000 of their expansion relates to production capability for our particular products.

Okay. Well, that's about it. It sounds very encouraging again. We're all anxious to see some actual revenue develop out of these things, and it sounds like it's getting closer. Thanks a lot, Joe.

(OPERATOR INSTRUCTIONS)

At this time, there are no further questions. Mr. Cross, do you have any closing remarks?

Thank you for attending our conference call, and we'll talk to you all after the next quarter. Thank you.

Thank you, this concludes the Nanophase Technologies third quarter conference call. You may now disconnect.