Solesence Inc (SLSN) 2004 Q4 法說會逐字稿

Good morning. My name is Julie, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Nanophase Technology's fourth 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 (OPERATOR INSTRUCTIONS).

The words expects, 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 limitation a decision of the customer to cancel a purchase order or supply agreement, demand for and acceptance of the Company's nanocrystalline materials, changes in development and distribution relationships, the impact of competitive products and technologies, possible disruption in commercial activities occasioned by terrorist activity and armed 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 introduce Mr. Joe Cross, President and Chief Executive Officer of Nanophase Technologies. You may begin.

Welcome to the Nanophase conference call to review 2004 and, more importantly, to discuss Nanophase's expectations for 2005. We're pleased that you are taking the time to visit with us today. Jess Jankowski, Nanophase's Chief Financial Officer, and I will be hosting this session. To begin the review, Jess will summarize the financial highlights. Jess?

Good morning and thanks for your continuing interest in Nanophase. As I review the financial performance of the Company, I intend to only address significant financial areas comparing 2004 to 2003. All numbers will be in approximate terms for ease of discussion. More details are included in the financials accompanying our press release of March 2.

Although revenues for the fourth quarter were about $1 million versus 1.2 million last year, revenues for the first nine months were relatively flat year over year. As a result, our 2004 revenues were off by $240,000 at 5.2 million. I said in the press release that Q4 revenue of this year reflected a bit of an anomaly.

We expect first quarter revenue to be about 50 percent higher than in Q4. Given that, keep in mind that Nanophase and its revenue growth is not a quarterly story. Focusing at quarters assumes that the quarters will always link. With dependency on several large customers, a quarterly change in revenue doesn't necessarily portend anything other than POs not coming in on a measured basis.

For the year, 70 percent of our revenue came from BASF and 13 percent came from Rohm & Hass. The bulk of the Rohm & Haas revenue in the form of development funding. We expect Rohm & Haas's 2005 revenue to be composed primarily of product. We also saw the beginnings of a revenue flow from ALTANA, our newest strategic partner. As our partnerships mature with Rohm & Hass and ALTANA, and product revenue volumes increase, we expect the revenue breakdown to reflect several large customers composing the majority of our revenue volume, leading to a more balanced distribution. This rebalancing should help to reduce quarter-to-quarter variations in demand while enhancing management's admittedly limited disability.

The Company posted a small positive gross margin for 2004. Our margins have suffered these past few years from not having enough revenue to absorb the manufacturing overhead that's required with working to work with the customers we have and the ones who are coming online. It's important at this point to reiterate that Nanophase has an existing manufacturing infrastructure that can support a multiple of 2004's volume without significant augmentation.

This structure has been dictated by our business model and is a key factor in making us an attractive partner to the large companies that we currently do business with and those that we expect to develop significant business with for the future. Much of this infrastructure supports compliance with FDA and USP standards for sunscreen materials as well as the exacting performance requirements of the electronic chemical industry for CMP and now the coatings industry.

The positive takeaway here is that as volume grows, we expect our strong and variable margins, which we have improved four years running and will continue to improve, to drive overall gross margin growth.

Moving down, SG&A expenses expanded by 270,000 year over year. The largest category increase was in audit and taxes for GAAP accounting and, to a greater extent, cost relating to implementation and execution of the new internal control audit required by Section 404 of the Sarbanes-Oxley Act. In other expenses, the 300,000 plus increase you see was largely composed of $288,000 in cost, related to the Company's withdrawn shelf offering.

Market conditions change rapidly during the process, and the offering was no longer an attractive alternative for the Company or its shareholders by the time we could be ready to move forward. This is not typically a recurring expense.

In total the Company lost 37 cents per share this year versus 38 cents per share last year. Note that depreciation and amortization amounted to about 8 cents per share or 1.4 million of the Company's $6.4 million loss for the year.

Moving to the balance sheet highlights, Nanophase ended the year with $11.6 million in cash and investments. In terms of Accounts Receivable, 92 percent of this balance is made up of revenues and receivables from our four largest customers -- BASF, Rohm & Hass, ALTANA, and the CIK license fees. These same customers accounted for a cumulative total of approximately 92 percent of our 2004 revenue.

Equipment and leasehold improvements amounted to 7.5 million in total, which included $530,000 for capital additions in 2004. 2005 capital requirements are projected to be a similar amount. Any larger capital expenditures would be market-driven, and no such large projects are currently required to achieve our targeted 2005 revenue.

On a liability side, the Company has about 600,000 in total debt. 98 percent of this represents a note in favor of our largest customer for equipment to produce sunscreen nano materials which, you may recall, we paid back on a per kilogram shipped basis. Looking at additional paid-in capital, you notice that it has increased by $12.7 million year over year. This is due to the March 2004 strategic investment by ALTANA, netting $90.2 (ph) million, the $2 million September 2004 warrant exercised by Grace Investments, and approximately 1.5 million received by Nanophase throughout 2004 relating to option exercises.

Thank you for your attention. Now I would like to hand things back over to our President and CEO, Joseph Cross.

Thank you, Jess. Since it is now March and we've covered most of Nanophase's significant 2004 accomplishments during previous conference calls and in the earnings release, I would like to use the time this morning to first offer our assessment of where Nanophase views itself entering 2005 and, secondly, discuss the Company's revenue growth strategy for 2005 and 2006.

As we benchmark the progress of the emerging nano materials industry, and where Nanophase stands, we believe that we are still well in the forefront of potential competitors as we qualitatively compare technologies, intellectual property, manufacturing capability, application technology readiness, and relationships with (indiscernible) partners such as BASF, ALTANA Chemie and Rohm & Haas.

This was also ALTANA's finding after it completed a comprehensive global survey to begin with about 300 companies and deciding that Nanophase was best in class prior to their $10 million investment last year. Given the size of the investment, the endorsement seems obvious.

More recently, a large consumer products company with whom we are now involved with several development projects has stated that it also surveyed approximately 300 companies and arrived at the same conclusion as ALTANA. While we believe that we continue to pioneer in leading nano materials, we are encouraged to receive independent endorsements from sophisticated, large companies.

As we enter 2005 and peer into 2006, we believe that Nanophase is well positioned for material revenue growth. While it is the Company's position not to provide guidance, and we are not, management believes that the Company is poised to increase revenue materially during 2005 and again in 2006, which we expect should achieve a cash flow breakeven revenue run rate. Again, we are not providing guidance.

Against this vision, we believe the Company is well prepared to succeed. Let me review at least part of our rationale.

Platform technologies. A recent overview of the nanotechnology industry by Think Equity Partners, entitled "Thinking Big About the Small World", noted that there will be platform companies going after multiple markets to capitalize on our unique technology position. We believe that Nanophase is such a platform company, based on the breadth of nano materials technologies that we have developed and implemented for the past four years.

We recognized in 1999 that simply making nano particles, especially through our 1999 technology, was not an adequate business model to succeed in the nano materials marketplace. Since that time, we have added a new nano particle process, NanoArc Synthesis, sophisticated nano particle coating technologies, and, we believe, lead the industry and nano particle dispersion technology in both water and solvent media. This is a platform of scaled manufactured nano materials technologies that we do not typically find outside of Nanophase. Nanophase's entire nano materials platform is patent pending or proprietary.

Last year, we began extending this platform into distinct applications, most often with our market partners, and expect these adjunct technologies to also grow in accordance.

As nanomaterial applications are developed, Nanophase also typically files patent applications. It is this flexible nanomaterials platform of technologies that, we believe, has now positioned us for the revenue growth that the Company and its stockholders require.

Market reach. We believe that, with the addition of ALTANA Chemie, along with BASF and Rohm & Haas, our market partners should drive sufficient organic growth in revenues and new product development for Nanophase to reach a breakeven position. I'm going to elaborate on this theme a little later in the discussion. We also believe that no other nanomaterials company has the global market reach offered by our current market partners. While managing our market partners' development in growth, Nanophase is also continuing to develop new customers and potential partners for additional markets, growing interest across multiple markets

As we have stated before, nanomaterials reached across multiple markets and applications. However, the readiness of the technology and the level of market interest have to be such that the situation is market pull, not just a technology push. This is a lesson that we have learned repeatedly. We perceive growing product-related interest across several markets and believe that the momentum is building. Nanomaterials appear to be beginning to lead the province of corporate R&D and entering product development groups, which are years closer to the market.

Manufacturing prowess. Bluntly stated, few if any nanomaterial companies have the manufacturing prowess of Nanophase. In the investment and nanotechnology analysis we review -- this crucial factor is generally poorly understood and consistently overlooked. However, a recent report by Stephens Inc. on nanotechnology, which is essentially a general overview in the industry dated September 1, 2004, noted that, and I quote, "proprietary know-how is worth basically zero if it can't be translated into a commercial product. The question now -- who is capable of mass producing the various discoveries?"

Since 1999, Nanophase has consistently improved output and reduced costs by creating the nanomaterials platform I mentioned earlier. Few companies are a size ISO 9001, 2000 certified. Few companies can match Nanophase's track record on quality and customer satisfaction measures over the past three or four years. Fewer still have the commercial metric tons of shipment history and manufacturing capability.

Manufacturing is something we do very well. It is a core competency of this company and a major reason large companies are increasingly interested in partnering with Nanophase.

So (indiscernible) the state of readiness entering in fiscal year, plus move the discussion to our perspective for 2005. We are optimistic about material revenue growth this year. We believe that potential revenue growth will be driven by our market partners and our internal business development initiatives that we expect to reach fruition, especially during the latter part of 2005.

To begin with BASF, we believe, based on BASF's plans, that revenue growth during 2005 and 2006 should be material. Based on BASF information and orders to date, demand for the current sunscreen nanomaterials should grow by 25 percent during 2005, and BASF now anticipates further growth of about 15 percent for 2006, which would correlate to about 44 percent growth over 2004 levels for the 2-year period. The next-generation suncare quoted nanomaterial that we have been discussing is essentially complete on our end. The Nanophase patent pending coating formulations has been developed. Testing is complete and positive. And we have produced the qualification (indiscernible) to be able to begin to plan market introduction sequence.

We currently believe that remedies for this product will begin ramping, perhaps in the last quarter of 2005, but most likely during the first quarter of 2006.

Additionally, we are jointly planning with BASF new product -- personal care products, some of which may begin introduction in 2005. New products potentially include another suncare formulation to additional personal care products that we are not at liberty to identify, two new nano particle-based products that we plan to develop and begin commercializing during 2005 and a personal care product based on Nanophase's patent pending nano particle dispersion technology.

Exact timelines for the new products are in planning and should be further solidified later in 2005.

In summary, current products with BASF are demonstrating solid organic market growth and are continuing plans to introduce new products. We believe that revenue growth at BASF and the personal care market should continue to be a driver for Nanophase over the next three years.

Moving to ALTANA Chemie, and specifically the coating agreements through BYK Chemie, our relationship continues to grow. Product development plans continue to be honed, and the global market approach continues to be better focused and organized. Let me review our current market and application efforts, which we expect to broaden as we gain market experience. Understand, as we attempt to qualify markets and nano product opportunities in this discussion, we're discussing the total identified opportunity. We do not presently have estimates or expectations of potential or predicted market share.

Wood coatings represent about a 200 million global market, of which 60 million is estimated as a total opportunity applicable for nano material products for scratch or abrasion resistance, UV formula stabilization in interior and exterior wood coatings and antimicrobial nano partners for exterior wood coatings. There are two released products in this market in several and various stages of development, both at BYK and Nanophase.

The global automotive coatings market is estimated at 200 million for refinish and OEM, specifically for scratch- or abrasion-resistant clear coats where the total nanomaterial product opportunity is estimated to be 40 to 60 million. Both BYK and Nanophase have an intensive development schedule for this market, which includes new nano particle development in manufacturing, which Nanophase plans to accomplish during the first half of this year.

Coil (ph) coatings, a market where BYK has been typically strong, is estimated at a 40 million global market with approximately 8 to 12 million as a total opportunity for nanomaterial products for scratch resistance, antimicrobial and UV protection.

General industrial coatings represent greater than a 200 million global market with about 20 to 60 million relevant as a total opportunity for nanomaterial products, primarily for scratch or abrasion resistance. Other market areas of BYK and Nanophase are currently pursuing include powder coatings, (indiscernible), thermoplastics, PVC, polyurethane foams and cold-cured (ph) materials. Plans for each market are being formulated, and product development has started.

As a summary for ALTANA Chemie, we have made definitive progress since the agreement was signed a year ago this month. Relationships with ALTANA Chemie through top management are excellent. During January, we provided a training session on nano products for the BYK U.S. sales force and are scheduled to do the same for Europe and Asia during April. We believe that our market relationship with ALTANA Chemie will be a material revenue driver for Nanophase over the next three years in the foreseeable future.

Last but certainly not least, let me review Rohm & Haas Electronic Materials for CMP Technologies, which appears to be gaining market traction with both our generation 2 and generation 3 chemistry.

During the fourth quarter of 2004, Rohm & Haas secured its first customer. It has about 4 additional fabs well down the path that Rohm & Haas expects to lead to adoption. In total, Rohm & Haas has about 20 engagements and is optimistic about success during 2005 and even more growth during 2006. For 2005, Rohm & Haas is committed to nanomaterials from Nanophase at a revenue rate about 25 percent higher than last year.

In parallel, we're developing a mutual development for new slurry products to address both the copper and tungsten (ph) technology nodes and expect that these efforts will advance towards maturity.

Moving to Nanophase business development. During 2004 our development efforts essentially evolved into five distinct areas. Personal care initiatives that are mutually synergistic with our market partner, BASF and focus on many of the top tier personal care companies. Business development that is synergistic with ALTANA Chemie, especially in the United States, for Coatings and Sealants. Mutual business development with Rohm & Hass for CMP, a new initiative with the Company that we are not liberty to divulge for bioactive and dental nano glass, and Nanophase-driven business development -- for example, personal care applications outside of BASF, cross-linking catalysts, antimicrobial optics, polishing and antihesives (ph).

A significant part of our efforts here are also directed to obtaining new market partners. You may recall that we mentioned during the last conference call that we anticipated securing a major new customer and revenue, stemming from our internal business development. That situation continues to advance towards a new product rollout. We shipped the initial manufacturing scale of quantity to the customer early in Q1 of 2005 and continue to expect initial orders during the second quarter.

Based on statements from this potential customer, we currently believe that this new effort may add approximately 1 million to annual revenues in 2005 and grow close to 2 million during 2006. Additionally, there are 2 other situations that we currently anticipate closing during the first half (ph) that should materially add to revenues during 2005. As soon as these are finalized, we will communicate appropriately.

Other business development initiatives continue to progress. The business development pipeline is robust and growing and, we believe, should support our aggressive revenue growth plans for 2005 and '06. A critical part of new business expansion and growth, both with our market partners -- especially BASF and ALTANA Chemie and for Nanophase's business development opportunities -- is innovation of new nano particles for specific applications and markets.

Nanophase has accordingly planned aggressive new nano particle and coating development through 2005, but especially in the first half. I want to make it clear that these are market pull development initiatives, which we believe is a definite positive for Nanophase.

In summary, management enters 2005 optimistic that the Company has developed excellent market partners in global opportunities across a significant market breadth. Current market relationship in Nanophase's vigorous business development initiatives should allow Nanophase to achieve material revenue growth in 2005 and '06.

This concludes our prepared remarks. We are now open to questions.

+++ q-and-a.

(OPERATOR INSTRUCTIONS). Nicolas Pay (ph), private investor.

We recently saw in the Nano Tech report a company that was not us announce the sales of titanium dioxide 10 nanometer grain size to a sunscreen manufacturer. I wonder if you could address that?

There are a couple of people in that space, to be frank with you, and I am not sure which company you are speaking about. We tend not to produce titanium dioxide at Nanophase. Two parts of that. the first part is that that's commodity material and in a space that is really on heavily by Dugussa and DuPont, and it doesn't seem to be a viable business model to challenge either of those.

The 10-nanometer arena -- we are aware of a couple of companies that are doing it. But we don't have much knowledge beyond that.

Are we able to produce that small a particle?

We think we could, if we thought there was a market for it. But we haven't identified a definite market for the material right now.

And BASF doesn't say that they would give them better saturation or better product? They haven't brought it up?

We're having discussions with BASF about different suncare formulations, some of which include titanium. And that's about all I can say on that.

Joe, just a follow-up question, if only, and then I'll turn it over. You cautioned us not to take this as a quarterly story, so I'll just talk years. Year 2002, our sales were 5.4 million, in 2003 there were 5.4 million, in 2004, they are 5.2 million. And the loss per share is 35, 38, 37.

The only thing that has gone up is the number of common shares outstanding; it's gone from 14.5 million to 17.25 million. Market pull -- we always hear in these conferences about all the people we have out there trying, like ALTANA and so on. And all the developments, hear a lot about how good our production is, how we are lowering our costs, all the patents.

But I don't see, except the promises -- we hope we're going to get increased businesses. I don't see market pull, and I know we shifted a year or so ago to a market-oriented development process -- marketing process rather than research driven.

Do you think this time it's really going to happen?

I am, frankly, feeling pretty comfortable about that. I mentioned before the beginning toward the last part of 2003, we really started to see people working seriously with nano materials. Now, when I say that, understand the context. The context is for years, we have been involved with Central R&D groups of large companies. And that's the interest we could get, and we quickly realized after lots of false starts and wasting a lot of time that working with Central R&D groups was just a tenuous path with no definitive direction.

We have seen, especially during last year, a lot of market pull developing for nano materials. The point I was trying to make in my script, relative to our development path is these are materials people are asking us for. I find that very healthy, to be honest with you.

In the past, we were guessing at what materials might have market use. And in this case we're having people come to us, ante up and say we really need this material; if you can make this material exactly like this, there's a market for that.

So I find that to be very healthy. I think that, while there has been a lot of things written, some of which are very hype-y about nano materials, we're definitely beginning to see, I believe, a very strong pull from different segments of the market. It's not even. Some markets are ahead of others, like there is much more market pull in personal care then, say, in the catalyst marketplace.

But we are seeing market pull, and I think that's very healthy because this Company has to grow revenue and every member of management is keenly aware of that.

Nick Tischenko (ph) of Global Crown.

I have, actually, two questions. The first one is related to your ledger view of the Company. When we talk about cash flow breakeven, what kind of revenue do you have in mind? And what kind of gross margin? And after you answer, I have another question.

We don't answer this kind of question.

You don't have a business model that you can talk about?

We have a business model.

And the question is related to business model.

We have a business model, and we have plans that are internal for the management team and the Board. But it's not something we communicate. We do not provide guidance or forecasts.

It's not a forecast. It's about business model. I not asking you when you are going to reach it.

We don't respond to that question.

Okay. Let's get back to what you were talking about during our last conference call. In the third quarter conference call you talked about main customer that you will see revenue from in fourth quarter. And he seen these revenues, and if not, why?

I think I covered that in the prepared script. We saw the initial manufacturing delivery quantity, and we delivered that, actually, in the first quarter during the first two weeks of January. And I have already covered that topic.

So it was pushed into first quarter?

Yes.

Doug Ellison (ph) of UBS.

Again, it sounds very promising, particularly the ALTANA operation. In the last conference call, just to follow onto the last caller's question, there was a reference to a letter of intent. Was that what you are discussing with the last customer?

Yes.

The letter of intent customer? Okay. Rohm & Hass -- there was an inventory build that was referenced in the third quarter. Has that been cleaned up, or what is the inventory situation?

To the best of my knowledge, that is starting to be cleaned out, which leads me to the fact that we will be delivering CMP materials this year.

The third generation or the second generation or --

They have two generations in the marketplace, and that's -- to differentiate between those two is a very detailed discussion. Generation 2 is out there, it's performing very well. Generation 3, which just entered the market and testing in the fourth quarter of last year, is also performing very well. There's a lot of excitement about this, apparently, in the semiconductor industry. I know Rohm & Hass is very excited about this. I was out there in January, reviewing all the plans with Rohm & Haas. And we are feeling very optimistic about the CMP market right now.

And the one customer that you had identified or talked about in the third quarter -- were they a the second generation CMP?

The customer that they secured in the fourth quarter is -- I believe they are on Generation 2 chemistry.

And it sounded like one to three more that are, hopefully, in the works. Are they working the third generation, or they still on the second generation?

There's a mixture of second and third generation.

Do the ones that are on second generation want to go to the third generation?

You know, I honestly can't answer that. This is being used in three technology notes, STI, SON, and a new technology node that's called ILD0. And each of those technology notes are different. Moreover, each of the fab shops have different design criteria and design their semiconductors different.

So, depending on design, depending on a lot of factors, sometimes Generation 2 is better and sometimes Generation 3 is better. And that's not something Nanophase is involved with. That's what Rohm & Haas does for a living.

Is that an easy transition from 2 to 3 for somebody might want to assume upgrade or --

Generation 2 and 3 -- Generation 3 -- maybe I didn't explain that well -- it's not necessarily an upgrade to Generation 2. It's a different chemistry that does, that operates in a different way. And again, for some fabs, it's a better solution than Generation 2, and for some fabs Generation 2 is a better solution than Generation 3.

So it's more of a broadening of the product line?

Yes, it is.

In the press release here, today, made reference to business picking up after the first of the year. Can you identify who that was from? Was that from ALTANA, or BASF, Rohm & Haas or the letter-of-intent customer? Or was it all of them together?

It's kind of altogether, kind of altogether.

No single large (multiple speakers) --

Well, BASF -- BASF is still our largest customer. And again, I don't want to provide guidance. But if I had to guess for the first quarter, BASF will be our largest customer in the first quarter. First quarter -- this is March 3rd. First quarter for us, frankly, is already locked. Everything is in hand, so I mean first quarter for us is almost a done deal at this late date.

Did I hear you correctly earlier in the conference call that you said that ALTANA, BASF and Rohm & Haas accounted for 92 percent of your sales?

Jess?

Yes, including CIK. The 300,000 from CIK for the license fee is still in there.

And is that for the fourth quarter -- it was 300,000?

Well, no, it's --

Annual.

Oh, it's annual?

That's an annual rate. I think last year I think ALTANA was at about 3 percent of volume. It's building. They will grow into a significant customer, probably not in 2005 but meaning, by definition, 10 percent of revenue or more.

And again, in the third quarter conference call you talked about antimicrobial product for textiles. Anything further on that?

That's progressing along. And in fact, we were just there, and that's progressing along. That company just went through another reorganization, and so it was -- it maybe slipped a couple weeks, the progress. But apparently it's moving quickly. We just had people there and meeting with the customer.

And also there is mention of medical products. Anything new in that area?

The major medical-related application we are working on is going very well. And we are pretty optimistic about that.

Sarbanes-Oxley cost. Was that anything significant in the fourth quarter and last year or going forward, or is that something that's just --?

It is a very significant cost. Sarbanes-Oxley costs will probably be, counting the consultant we brought on aside from our outside auditors, will probably be somewhere along the lines of triple our audit costs for the first year. Now, we hope as we work out the bumps that next year's Sarbanes-Oxley costs will be much lower. Theoretically, it should. And right now this rule, which had a lot of great features -- one of the features that, yesterday, the SEC came out with and said that small-business filers with lower market caps and hours can wait till 2006. There hasn't been a provision on this side, and so what is happening is a lot of the auditors are scrambling to make sure that everything is as solid as it can be. And during that process -- it's probably more painful than it will be next year.

So it's going to continue to be a significant cost, in the several hundred thousand dollar range, between that and the audit. But I don't think it will grow ever next year, and, hopefully, the combination of everybody knowing what to do a little better next year as well as being able to push some of that work to lower levels in the auditing firms, because this year it's at higher levels than maybe it would be, due to lack of experience. It should be mitigated a little bit for the '05 accounting year.

You mentioned next year. Is that next year '06 you are talking about?

'05. When I am talking about the numbers, the '04 numbers, we have accrued a bunch of those costs in the '04 costs. We will probably end up exceeding those accruals. We will see what the first quarter brings. But for the '05 audit, which we will -- although the cash will leave the Company in the end of 2005 and early 2006 we will accrue the bulk of the expenses in '05. Don't anticipate them being significantly higher. Hopefully, they will be less than they were for the '04 audit.

Were any of those expenses in '04, and fourth quarter? Or is it still yet to -- ?

Yes, they were -- many of them were in the fourth quarter, third and fourth quarter. And then will have some overages, probably, that are going to bleed into the first quarter, discussed in the Q1 and MD&A. And for next year we have tried to accrue it a little more evenly over the year, but it's just tough. People are doing this on a time and material basis, basically, versus on hard quotes because they are not -- the first wave of filers is going to educate a lot of the audit community as well as a lot of the public companies like us to see what everybody did, how everybody reacted, how the SEC reacted and what is required.

Well, since you have no research coverage, of course, the information that we get on the Company comes from you guys. Any of these additional patents and new revenue streams wouldn't be hard to be significant, since you are starting at the base of 1 million for the fourth quarter. Do you plan to announce prior to the fourth quarter? If we start to get a stream of positive revenue that is actually being billed, are you going to be updating us at that point or -- (indiscernible)?

Yes. Look, we try to keep the stockholders informed on material events. If we secure a large order that's material, we will, of course, announce it. And if we receive a patent that's material, we will of course announce it. We received 5 foreign patents, I believe, last year. We didn't announce every single one, because they're counterparts of U.S. patents that we have already announced. And we don't want to put out a release that appears to be hype-y.

But we tend to release information that's material to the Company and material to the stockholders.

And the challenge to the one patent that -- I guess it was last April or may -- that was out, anything further on that? Has that been resolved yet?

Actually, no. It went through the process and we are waiting on the patent office.

And nothing that you can update us on there?

We don't know how to expedite the patent office.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions. Mr. Cross, are there any closing remarks?

We would like to thank everybody for visiting with us today, and we will speak to everyone again at the end of the next quarter.

This concludes today's Nanophase Technology's fourth quarter conference call. You may now disconnect.