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What changed in SOLESENCE, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SOLESENCE, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+148 added−180 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-28)

Top changes in SOLESENCE, INC.'s 2024 10-K

148 paragraphs added · 180 removed · 123 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

72 edited+11 added−18 removed29 unchanged
Biggest changeManufacturing Operations We currently have manufacturing capacity based in three locations in the Chicago area. At two of these facilities, we are able to develop and supply engineered materials and bulk finished goods in quantities ranging from grams to metric tons.
Biggest changeWe are able to develop and supply engineered materials and bulk finished goods in quantities ranging from grams to metric tons. All facilities are registered under the ISO 9001, American National Standard, Quality Management System Requirements, ISO 22716 American National Standard, Environmental Management System Requirements, and ISO 14001, American National Standard, Environmental Management System Requirements.
By combining our market awareness, proprietary dispersion capabilities and formulation know-how, our Solésence products enable our brand partners to expand the range of products within skin care and color cosmetics categories that can include sun and environmental protection, and their products consequently fill a unique market segment which drives the growing demand for our Solésence products.
By combining our market awareness, proprietary dispersion capabilities and formulation know-how, our Solésence products enable our brand partners to expand the range of products within skin care and color cosmetics categories that can include sun and environmental protection, and consequently fill a unique market segment which drives the growing demand for our Solésence products.
We have also developed a highly flexible workforce that has been cross trained to allow it to be employed broadly across our manufacturing processes. Beginning in late 2019, we also began to employ a significant number of temporary operators to assist us in supporting the production of our Solésence products.
We have also developed a highly flexible workforce that has been cross trained to allow it to be employed broadly across our manufacturing processes. Beginning in late 2019, we also began to employ a significant number of temporary operators to assist us in supporting the production of our Solésence customer products.
All of the pending and owned foreign patents are counterparts to domestic filings covering our platform of nanotechnologies and surface treatments. 5 Competition Within each of our targeted markets and product applications, we face potential competition from contract manufacturers and developers, advanced materials and chemical companies, and suppliers of traditional materials.
All of the pending and owned foreign patents are counterparts to domestic filings covering our platform of nanotechnologies and surface treatments. Competition Within each of our targeted markets and product applications, we face potential competition from contract manufacturers and developers, advanced materials and chemical companies, and suppliers of traditional materials.
We continue to manufacture and supply hundreds of metric tons of surface engineered zinc oxide and titanium dioxide to our customers annually, and these are used by major global consumer products companies for sunscreens and skin health-focused personal care products.
We continue to manufacture and supply hundreds of metric tons of surface engineered zinc oxide and titanium dioxide ingredients to our customers annually, and these are used by major global consumer products companies for sunscreens and skin health-focused personal care products.
We have no collective bargaining agreements and believe that we have a strong relationship with our employees, whom management believes represent the strength of our Company. 6 Backlog We do not believe that a backlog as of any particular date is indicative of future results.
We have no collective bargaining agreements and believe that we have a strong relationship with our employees, whom management believes represent the strength of our Company. Backlog We do not believe that a backlog as of any particular date is indicative of future results.
In July at Cosmoprof North America, Solésence was awarded the Cosmopack Award for best Formulation for its product Multi-Cultural Magic SPF 50+ Featuring Kleair™ technology, acknowledging the Company’s technology, formulation and marketing know-how.
In July 2022 at Cosmoprof North America, Solésence was awarded the Cosmopack Award for best Formulation for its product Multi-Cultural Magic SPF 50+ Featuring Kleair™ technology, acknowledging the Company’s technology, formulation and marketing know-how.
This represents a move downstream from our previous position — one of providing ingredients to manufacturers — to offering finished products that we believe offer a clear and distinct market advantage relative to both aesthetics and performance.
This represents a move downstream from our previous position — one of providing ingredients to manufacturers — to offering finished consumer products that we believe offer a clear and distinct market advantage relative to both aesthetics and performance.
These risks, uncertainties and factors include, without limitation: our ability to be consistently profitable despite the losses we have incurred since our incorporation; a decision by a customer to cancel a purchase order or supply agreement in light of our dependence on a limited number of key customers; the terms of our supply agreements with BASF which could trigger a requirement to transfer technology and/or sell equipment to that customer; our potential inability to obtain working capital when needed on acceptable terms or at all; our ability to obtain materials at costs we can pass through to our customers, including high purity zinc, and other items impacted by supply chain pressures; uncertain demand for, and acceptance of, our Solésence products, and our advanced materials; our manufacturing capacity and product mix flexibility in light of customer demand; our limited marketing experience, including with our suite of Solésence products; changes in development and distribution relationships; the impact of competitive products and technologies; our dependence on patents and protection of proprietary information; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations, especially any new governmental regulations focusing on the processing, handling, storage or sale of nanomaterials, that could be difficult to respond to or costly to comply with; business interruptions due to unexpected events or public health crises, including viral pandemics such as COVID-19; and the resolution of litigation or other legal proceedings in which we may become involved.
These risks, uncertainties and factors include, without limitation: our ability to be consistently profitable despite the losses we have incurred since our incorporation; a decision by a customer to cancel a purchase order or supply agreement in light of our dependence on a limited number of key customers; the terms of our supply agreements with BASF which could trigger a requirement to sell equipment to that customer; our potential inability to obtain working capital when needed on acceptable terms or at all; our ability to obtain materials at costs we can pass through to our customers, including high purity zinc, and other items impacted by supply chain pressures; uncertain demand for, and acceptance of, our Solésence products, and our advanced materials; our manufacturing capacity and product mix flexibility in light of customer demand; our limited marketing experience, including with our suite of Solésence products; changes in development and distribution relationships; the impact of competitive products and technologies; our dependence on patents and protection of proprietary information; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations, especially any new governmental regulations focusing on the processing, handling, storage or sale of nanomaterials as it could impact our personal care ingredients business, that could be difficult to respond to or costly to comply with; business interruptions due to unexpected events or public health crises, including viral pandemics such as COVID-19; and the resolution of litigation or other legal proceedings in which we may become involved.
BASF, which describes itself as the world’s leading chemical company with annual revenue of approximately $79 billion, is a “globally leading supplier of sustainable high-performance ingredients for the personal care industry,” with recognized brands, significant revenue, and a broad sales network. BASF is primarily responsible for the business development cycle and maintains the direct customer relationships.
BASF, which describes itself as the world’s leading chemical company with annual revenue of approximately $65 billion, is a “globally leading supplier of sustainable high-performance ingredients for the personal care industry,” with recognized brands, significant revenue, and a broad sales network. BASF is primarily responsible for the business development cycle and maintains the direct customer relationships.
These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance or achievements in 2024 and beyond to differ materially from those expressed in, or implied by, such statements.
These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance or achievements in 2025 and beyond to differ materially from those expressed in, or implied by, such statements.
Our initial focus continues to be on establishing a footprint with both new and existing Solésence brand partners, to enable the sale of our patented skin health products as primary sunscreens. Also in 2022, Nanophase was granted a patent in Korea for the Kleair™ technology used exclusively in Solésence products. Shortly thereafter, Solésence Beauty Science received two industry accolades.
Our initial focus continues to be on establishing a footprint with both new and existing Solésence brand partners, to enable the sale of our patented skin health products as primary sunscreens. Also in 2022, Solésence was granted a patent in Korea for the Kleair™ technology used exclusively in Solésence products. Shortly thereafter, Solésence received two industry accolades.
In many markets, the actual or potential competitors are larger and more diversified than we are; however, we believe we focus on market segments and opportunities where our materials and related technologies are superior to those of our competitors, often due to our abilities to produce highly engineered ingredients to meet specific performance requirements, develop advanced material solutions for customers’ specific applications, and in the case of Solésence, finished products that impart the benefits of minerals-based products with superior tactile, visual, and performance characteristics.
In many markets, the actual or potential competitors are larger and more diversified than we are; however, we believe we focus on market segments and opportunities where our materials and related technologies are superior to those of our competitors, often due to our abilities to produce highly engineered ingredients to meet specific performance requirements, develop advanced material solutions for customers’ specific applications, and in the case of consumer products line, finished products that impart the benefits of minerals-based products with superior tactile, visual, and performance characteristics.
In September, Solésence was awarded the Cosmetics & Toiletries Allē Award for Most Significant Active Ingredient in Sun/Light Protection for Kleair™ technology, a further acknowledgement of the company’s technology know-how, as well as a recognition for the Company in the areas of innovation and impact.
In September 2022, Solésence was awarded the Cosmetics & Toiletries Allē Award for Most Significant Active Ingredient in Sun/Light Protection for Kleair™ technology, a further acknowledgment of the company’s technology know-how, as well as a recognition for the Company in the areas of innovation and impact.
Our efforts in research and development, cosmetic formulating, process engineering and advanced engineering groups are focused in three major areas: 1) application development for our products; 2) creating or obtaining additional core materials technologies and/or materials that have the capability to serve multiple beauty or life science markets; and 3) continuing to improve our core technologies to improve manufacturing operations and reduce costs.
Our efforts in research and development, cosmetic formulating, process engineering and advanced engineering groups are focused in three major areas: 1) application development for our products; 2) creating or obtaining additional technologies platforms that have the capability to serve multiple beauty or life science markets; and 3) continuing to improve manufacturing operations to improve process reliability and reduce costs.
Solésence clients, or brand partners, are positioned in skin care, makeup/cosmetics, and sun care markets, with the majority of our partners operating in the prestige beauty segment with retail, direct-to-consumer, and/or omnichannel strategies.
Our consumer products clients, or brand partners, are positioned in skin care, makeup/cosmetics, and sun care markets, with the majority of our partners operating in the prestige beauty segment with retail, direct-to-consumer, and/or omnichannel strategies.
Personal Care Ingredients Business Prior to 2020, our largest line of business had been the manufacture and sale of APIs in the skin health and sun care markets, which we deliver to customers through strategic partnerships.
Personal Care Ingredients Prior to 2020, our largest of products had been the manufacture and sale of APIs in the skin health and sun care markets, which we deliver to customers through strategic partnerships.
In early 2023, Solésence was named number 2 on Fast Company’s Most Innovative Beauty Businesses list. This is a prestigious award that recognizes the impact we have on the industry we serve and the lives of the people who use our products.
In early 2023, Solésence was named number 2 in the Beauty category of Fast Company’s World’s Most Innovative Companies list. This is a prestigious award that recognizes the impact we have on the industry we serve and the lives of the people who use our products.
In 2022, Solésence (through Nanophase, as its parent company) was granted site clearance by Australia’s Therapeutic Goods Administration (“TGA”) for the full finished product manufacture of creams, lotions, sprays, sticks and all topical sunscreen forms. TGA site clearance is legally required for brands to market Solésence-made products as primary sunscreens in Australia.
In 2022, Solésence was granted site clearance by Australia’s Therapeutic Goods Administration (“TGA”) for the full finished product manufacture of creams, lotions, sprays, sticks and all topical sunscreen forms. TGA site clearance is legally required for brands to market Solésence-made products as primary sunscreens in Australia.
Personal Care Ingredients Business In addition to serving strategic partners in diverse markets and geographic locations, we will continue to devote significant resources to maintaining and growing our relationship with BASF Corporation (“BASF”), the largest customer in our personal care ingredients line of business. This has been a successful relationship that we expect will contribute to our future growth.
Personal Care Ingredients In addition to serving strategic partners in diverse markets and geographic locations, we will continue to devote significant resources to maintaining and growing our relationship with BASF Corporation (“BASF”), the largest customer in our personal care ingredients product group. This has been a successful relationship that we expect will contribute to our future growth.
Some of the raw materials that are critical to the production of our products and parts that are critical to the operation of our equipment are sourced from single suppliers, suppliers from China and Korea, and in some cases, a single supplier from China. However, we do not knowingly source any materials from the Xinjiang region of China.
Some of the raw materials that are critical to the production of our products and parts that are critical to the operation of our equipment are sourced from single suppliers, suppliers from China and Korea. However, we do not knowingly source any materials from the Xinjiang region of China.
We have a full-time, advanced degreed professional, along with a supporting staff, who spend a significant amount of time managing governmental regulation compliance and EH&S. We believe that our Company has an exemplary safety record. Employees On December 31, 2023, we had a total of 79 full-time employees, 12 of whom hold advanced degrees.
We have a full-time, advanced degreed professional, along with a supporting staff, who spend a significant amount of time managing governmental regulation compliance and EH&S. We believe that our Company has an exemplary safety record. Employees On December 31, 2024, we had a total of 98 full-time employees, 13 of whom hold advanced degrees.
Additionally, we have a number of temporary, and temporary-to-permanent employees, typically 65 to 85 on a demand-driven basis, and a number of contractors with specific industry experience that have become a part of our talent pool.
Additionally, we have a number of temporary, and temporary-to-permanent employees, typically 125 to 225 on a demand-driven basis, and a number of contractors with specific industry experience that have become a part of our talent pool.
In our personal care ingredients business, we believe that targeted collaborations with our long-standing customers in the ingredients space will enable them to have a competitive advantage which will sustain and/or grow their market share in the sunscreen API market.
Through our personal care ingredients product line, we believe that targeted collaborations with our long-standing customers will enable them to have a competitive advantage which will sustain and/or grow their market share in the sunscreen API market.
As our Solésence products continue to represent more of our total revenues, we expect to see a number of smaller (sub-10% of revenue) customers represent a more significant portion of our total revenue. We have experienced this in 2023 and 2022 and expect it to continue in 2024 and beyond.
As our consumer products continue to represent more of our total revenues, we expect to see a number of smaller (sub-10% of revenue) customers represent a more significant portion of our total revenue. We have experienced this in 2024 and 2023 and expect it to continue in 2025 and beyond.
The Company is actively taking steps to reduce the number of singularly sourced raw materials. 3 Markets and Distribution Solésence Beauty Science Business We partner with brands on a global basis to develop, manufacture and market products that enhance lives through healthy skin.
The Company is actively taking steps to reduce the number of singularly sourced raw materials. 3 Markets and Distribution Consumer Products We partner with brands on a global basis to develop, manufacture and market products that enhance lives through healthy skin.
Products developed and sold by our Solésence beauty science subsidiary are all produced under the requirements of current Good Manufacturing Standards (“cGMP”), as enforced by the U.S. Food and Drug Administration (“FDA”), which enables us to leverage the expertise we developed in the manufacture of personal care ingredients.
Products developed and sold through our Solésence consumer product line are all produced under the requirements of current Good Manufacturing Standards (“cGMP”), as enforced by the U.S. Food and Drug Administration (“FDA”), which enables us to leverage the expertise we developed in the manufacture of personal care ingredients.
Advanced Materials Business Our third line of business has been the manufacture and sale of advanced nanoparticle materials, including a material used in life science applications to enhance the performance of PCR test methods.
Advanced Materials A third product for us has historically been the manufacture and sale of advanced nanoparticle materials, including a material used in life science applications to enhance the performance of PCR test methods.
To reduce the impact of having a high concentration of sales to a limited number of customers, we have pursued new customers through our market focused business model, and particularly through our Solésence beauty science subsidiary.
To reduce the impact of having a high concentration of sales to a limited number of customers, we have pursued new customers through our market focused business model, and particularly through our consumer products.
We believe we are well-positioned with our platform of integrated commercial materials technologies and track record of technology improvement and evolution. In addition to competition in the advanced materials and related markets, our Solésence beauty science subsidiary faces competition from a wide variety of offerings in the field of skin care.
We believe we are well-positioned with our platform of integrated commercial materials technologies and track record of technology improvement and evolution. Our Solésence consumer products faces competition from a wide variety of offerings in the field of skin care.
We produce these products using proprietary coating and dispersion technologies that comply with the requirements of cGMP and are classified as Active Pharmaceutical Ingredients, or APIs, by the FDA. We believe we have opportunities for growth in API sales in 2024.
We produce these products using proprietary coating and dispersion technologies that comply with the requirements of cGMP and are classified as Active Pharmaceutical Ingredients, or APIs, by the FDA.
Financial and other information may also be accessed at our website. The address is www.nanophase.com.
Financial and other information may also be accessed at our website. The address is to ir.solesence.com .
TGA site clearance is legally required for brands to market Solésence-made products as primary sunscreens in Australia. Our initial focus will be on establishing a footprint with both new and existing Solésence brand partners, to enable the sale of our patented skin health products as primary sunscreens. We are committed to environmental health and safety (“EH&S”).
Our initial focus will be on establishing a footprint with both new and existing Solésence brand partners, to enable the sale of our patented skin health finished products as primary sunscreens. We are committed to environmental health and safety (“EH&S”).
As of the date of this filing, we own 10 U.S. patents and 8 pending U.S. patent applications. We also own 56 foreign patents and patent applications consisting of 35 issued or allowed foreign patents and 21 pending foreign patent applications.
As of the date of this filing, we own 10 U.S. patents and 5 pending U.S. patent applications. We also own 108 foreign patents and patent applications consisting of 68 issued or allowed foreign patents and 40 pending foreign patent applications.
Since 2022 we continue to monitor delays in shipping exports from China and Korea. Despite the Russian invasion of Ukraine, we do not anticipate any directly related supply disruptions as we do not knowingly source any materials directly from either country.
We continue to monitor delays in shipping exports from China and Korea. The Company is monitoring the potential impacts of Chinese tariffs on our cost of materials sourced from China. Despite the Russian invasion of Ukraine, we do not anticipate any directly related supply disruptions as we do not knowingly source any materials directly from either country.
Business Segment and Geographical Information Our operations comprise a single business segment and all of our long-lived assets are located within the United States. See Note 13 to the accompanying Financial Statements for additional information.
Business Segment and Geographical Information Our operations comprise a single business segment and all of our long-lived assets are located within the United States.
Skin health and medical diagnostics combined currently make up the great majority of our business and drive our forward growth strategy, with additional revenue being generated from other legacy advanced materials applications. The Company was incorporated in Illinois on November 25, 1989 and became a Delaware corporation during November 1997.
Skin health, addressed through both our Solesence consumer products and our Active Pharmaceutical Ingredients (“APIs”), currently make up the great majority of our business, with additional revenue being generated from other legacy advanced materials applications. The Company was incorporated in Illinois on November 25, 1989 and became a Delaware corporation during November 1997.
We believe that our Solésence beauty science technology and our expertise in the nuances of formulating products that contain UV protection, coupled with our expanding capability to produce novel formats, will allow us to become a competitive player in this market on a sustainable basis.
We believe that our Solésence consumer products technology and our expertise in the nuances of formulating products that contain UV protection, coupled with our expanding capability to produce novel formats, will allow us to become a competitive player in this market on a sustainable basis. 5 Governmental Regulations, Including Climate Change The manufacture and use of certain products that contain Active Pharmaceutical Ingredients are subject to governmental regulations.
While we will continue to produce and sell materials to our other advanced materials customers, it is not our strategic focus.
While we will continue to produce and sell materials to our other advanced materials customers, it is not our strategic focus, and we expect it to make up less of our total business over time.
Our two existing facilities are registered under the ISO 9001, American National Standard, Quality Management System Requirements, and ISO 14001, American National Standard, Environmental Management System Requirements. We are compliant with cGMP for products under U.S. Food and Drug Administration (“FDA”) regulation, applying to the manufacture of APIs and OTC Finished Dosage Form materials (primarily used in sun protection).
We are compliant with cGMP for products under U.S. Food and Drug Administration (“FDA”) regulation, applying to the manufacture of APIs and OTC Finished Dosage Form materials (primarily used in sun protection).
However, we require very high purity zinc for our personal care applications that have occasionally seen shortages in prior years. Although we currently believe we have developed adequate commercial relationships to supply the necessary raw materials for our business which are not readily commercially available, our business is subject to the pricing and availability of certain raw materials.
Although we currently believe we have developed adequate commercial relationships to supply the necessary raw materials for our business which are not readily commercially available, our business is subject to the pricing and availability of certain raw materials.
We have a long-term exclusive relationship with BASF, primarily to provide nano-scale specific zinc oxide-based products made to specific specifications to be used as ingredients in personal care cosmetics, with sunscreens and daily wear products being the dominant applications. On August 9, 2022 BASF filed a complaint in the Superior Court of New Jersey.
We have a long-term exclusive relationship with BASF, primarily to provide nano-scale zinc oxide-based products made to specific specifications to be used as ingredients in personal care cosmetics, with sunscreens and daily wear products being the dominant applications. These materials differ significantly in their specifications from those used in the consumer products line.
Instead, we sell our Solésence ® products to brand partners as market-ready products, as customized white label products, or as custom-developed products, in each case, for sale or distribution to consumers under our customers’ brand names.
Instead, we sell our Solésence consumer products to brand partners as market-ready products, as customized white label products, or as custom-developed products, in each case, for sale or distribution to consumers under our customers’ brand names. 2 The extent to which we grow will be dependent upon our ability to effectively expand our capabilities during 2025.
We have included our website address throughout this Form 10-K as textual references only. The information contained on, or accessible through, our website is not incorporated into this Form 10-K.
We have included our website address throughout this Form 10-K as textual references only. The information contained on, or accessible through, our website is not incorporated into this Form 10-K. 7 Item 1A. Risk Factors Not required for a smaller reporting company. Item 1B. Unresolved Staff Comments Not required for a smaller reporting company.
Both the Solesence ® beauty science business and the personal care ingredients business have been positively impacted by the growing interest among consumers for mineral-based sunscreens, which management sees as a validation of the Company strategy.
Both the customer products and the personal care ingredients have been positively impacted by the growing interest among consumers for mineral-based sunscreens, which management sees as a validation of the Company strategy. 4 Manufacturing Operations We currently have manufacturing capacity based in three locations in the Chicago area.
Key Customers A limited number of key customers account for a substantial portion of our commercial revenue, and aside from our largest customer, and our medical diagnostics customer, we are seeing the composition of these key customers change with the growth we are experiencing within our Solésence beauty science subsidiary, which has grown to exceed Personal Care Ingredients and Advanced Materials combined.
See Note 13 to the accompanying Financial Statements for additional information. 6 Key Customers A limited number of key customers account for a substantial portion of our commercial revenue, and aside from our largest customer, we are seeing the composition of these key customers change with the growth we are experiencing within our consumers products line, which has grown to exceed personal care ingredients line significantly.
In addition, our forward-looking statements could be affected by general industry and market conditions and growth rates. Readers of this Form 10-K should not place undue reliance on any forward-looking statements.
In addition, our forward-looking statements could be affected by general industry and market conditions and growth rates. Readers of this Form 10-K should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.
We are prioritizing facilities expansion, and capital investment in this business to allow for continued growth, and increased profitability. 2 During 2015 we were granted a patent on a new type of particle surface treatment (coating) — now called Active Stress Defense™ Technology — which has become the cornerstone of our new product development in our Solésence business, with first revenue recognized during 2017.
Consumer Products During 2015 we were granted a patent on a new type of particle surface treatment (coating) — now called Original Active Stress Defense™ Technology. This has become the cornerstone of our new product development in our consumer product line, with first revenue recognized during 2017.
Many of our customers are significantly larger than we are and, therefore, may be able to exert a high degree of influence over us. While our agreements with BASF are long-term agreements, they may be terminated by BASF under certain circumstances with reasonable notice and do not provide any guarantees that BASF will buy our products.
While our agreements with BASF are long-term agreements, they may be terminated by BASF under certain circumstances with contractually required notice and do not provide any guarantees that BASF will buy our products.
We now offer a suite of three technologies under our Active Stress Defense™ platform, each of which offers a distinct market advantage in terms of performance, aesthetics, and/or “clean” positioning in UV and environmental protection, with flexible formulas that allow for adoption by a range of brands with different market positions.
In 2020, Solésence consumer products revenue doubled revenue from our personal care ingredients products. We now offer a suite of three technologies under our Active Stress Defense™ platform, each of which offers a distinct market advantage in terms of performance, aesthetics, and/or “clean” positioning in UV and environmental protection.
The complexities of sunscreen regulation and the nuances of the development and manufacture of sunscreen products present a barrier for brands with integrated manufacturing in other skin care and cosmetics areas. Still, several Solésence customers have internal development and manufacturing capabilities that are similar to the capabilities of Solésence, and can serve as indirect competition to our products and services.
Still, several Solésence consumer products customers have internal development and manufacturing capabilities that are similar to the capabilities of Solésence and can serve as indirect competition to our products and services.
Given our technological position, in addition to the historical market acceptance of our APIs for use in skin health products and sunscreens, rapidly growing sales for our suite of Solésence® finished products, and the expanded use of our diagnostic materials in aiding the fight to curb the spread of COVID-19 and other viruses, in 2021 we announced that we reoriented our Company strategy.
Given our technological position, in addition to the historical market acceptance of our APIs for use in skin health products and sunscreens, we have seen rapidly growing sales for our suite of Solésence consumer products.
Except as required by federal securities laws, we undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. 7 Investor Information We are subject to the informational requirements of the Exchange Act and, accordingly, file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”).
Investor Information We are subject to the informational requirements of the Exchange Act and, accordingly, file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”).
Item 1. General Company Background Nanophase Technologies Corporation (“Nanophase,” “Company,” “we,” “our,” or “us”), along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is a leading innovator in minerals-based and scientifically-driven health care solutions across beauty and life science categories, protecting skin from environmental aggressors and aiding in medical diagnostics.
Solésence, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence consumer products subsidiary”), is a leading innovator in scientifically-driven health care solutions across beauty and life science categories, protecting skin from environmental aggressors and enhancing the aesthetic appeal of healthy products.
Currently, we have registered Zinc Oxide, Aluminum Oxide, Iron Oxide and Octyltrimethoxysilane under REACH. Our operations employ a cellular, team-based manufacturing approach, where workers operate in work “cells,” under a lean manufacturing environment to continuously advance and improve production capabilities.
We maintain, by participation, support GMP site licenses related to import of our customer products in Canada and Australia. Our operations employ a cellular, team-based manufacturing approach, where workers operate in work “cells,” under a lean manufacturing environment to continuously advance and improve production capabilities.
Through the two-year period ended December 31, 2023, we had cumulative research and development expenses of approximately $6.8 million and no related cumulative capital expenditures on equipment and leasehold improvements. 4 Competitive Advantage In our Solésence beauty science business, our Active Stress Defense™ platform of proprietary technologies – which includes Kleair™ – offers unique skin health benefits through performance-related and aesthetic advantages in environmental protection skin health products, including in UVA/UVB, pollution and HEV (blue) light protection.
Competitive Advantage Through our Solésence consumer product line, our Active Stress Defense™ platform of proprietary technologies – which includes Kleair™ – offers unique skin health benefits through performance-related and aesthetic advantages in environmental protection skin health products, including in UVA/UVB, pollution and HEV (blue) light protection.
Our total research and development expense, which includes all expenses relating to our technology and advanced engineering groups, during the years ended December 31, 2023 and 2022, was $3.8 million and $3.0 million, respectively.
Our total research and development expense, which includes all expenses relating to our technology and advanced engineering groups was $3.8 million, during the years ended December 31, 2024 and 2023. This represents our share of these expenses only and does not take into account amounts spent by any of our customers in support of new product development.
Sources and Availability of Raw Materials Most of the raw materials we use are readily commercially available. In some cases, we rely on sole-source processors of materials that utilize an array of worldwide sources for the raw materials that they process to our specifications.
In some cases, we rely on sole-source processors of materials that utilize an array of worldwide sources for the raw materials that they process to our specifications. However, we require very high purity zinc for our personal care applications that have occasionally seen shortages in prior years.
We also comply with the European Chemical Agency’s regulations issued to date pertaining to the chemicals we have registered under REACH. In early 2022, we were granted site clearance by Australia’s TGA for the full finished product manufacture of creams, lotions, sprays, sticks and all topical sunscreen forms.
In early 2022, we were granted site clearance by Australia’s TGA for the full finished product manufacture of creams, lotions, sprays, sticks and all topical sunscreen forms. TGA site clearance is legally required for brands to market Solésence-made products as primary sunscreens in Australia.
Governmental Regulations, Including Climate Change The manufacture and use of certain of the products that contain Active Pharmaceutical Ingredients are subject to governmental regulations. As a result, we are required to adhere to the cGMP requirements of the FDA and similar regulations that include testing, control and documentation requirements enforced by periodic inspections.
As a result, we are required to adhere to the cGMP requirements of the FDA and similar regulations that include testing, control and documentation requirements enforced by periodic inspections. We also comply with the European Chemical Agency’s regulations issued to date pertaining to the chemicals we have registered under REACH.
For 2023, total Solésence revenue amounted to $25.2M or 68% of total revenue compared to $23.1M, or 62% for 2022. In particular, revenue from four customers across all business areas, our largest customer in personal care applications (BASF) and three of our Solésence customers, constituted approximately 25%, 17%, 15%, and 7%, respectively, of our 2023 total revenue.
In particular, revenue from our three largest customers across all business areas included our largest customer in personal care applications (BASF) and two of our consumer products customers, which constituted approximately 13%, 32%, and 7%, respectively, of our 2024 total revenue.
It is also compliant with cGMP for products under FDA regulation, applying to the manufacture of APIs and OTC Finished Dosage Form materials (primarily used in sun protection). We have registered some of the chemicals we ship to customers in Europe pursuant to the European Chemical Agency’s regulations issued to date pertaining to Registration Evaluation and Authorization of Chemicals (“REACH”).
We have registered some of the chemicals we ship to customers in Europe pursuant to the European Chemical Agency’s regulations issued to date pertaining to Registration Evaluation and Authorization of Chemicals (“REACH”). Currently, we have registered Zinc Oxide, Aluminum Oxide, Iron Oxide and Octyltrimethoxysilane under REACH.
As a result, we plan to continue investments in facilities and equipment as well as in human resources, in 2024 and beyond.
As a result, we plan to continue investments in facilities and equipment as well as in human resources, in 2025 and beyond. We are prioritizing operational efficiencies, facilities expansion, and capital investment in this product line to allow for continued growth, and increased profitability.
We endeavor to either meet specific customer needs or to develop applications solutions to address unmet needs in a particular market where we believe our materials will offer a distinct performance advantage.
Research and Development Most of our research and development over the past few years has been directly related to the development of Solésence consumer products. We endeavor to either meet specific customer needs or to develop solutions to address unmet or emerging needs where we believe our technologies will offer a distinct performance advantage.
Our expertise in materials engineering allows us to effectively coat and disperse materials on a nano and “non-nano” scale for use in a variety of markets in skin health, including for use in sunscreens as Active Pharmaceutical Ingredients (“APIs”) and as fully developed prestige skin care products, marketed and sold through our Solésence beauty science subsidiary.
We offer comprehensive production, from engineered materials, formulation development, and finished product development, to commercial manufacturing and packaging capabilities. Our expertise in materials engineering allows us to effectively coat and disperse materials on a nano and “non-nano” scale for use in a variety of markets in skin health, including for use in sunscreens as APIs.
We continue to service other profitable markets where we have had a degree of success in the past, including applications in food packaging, coatings and optical polishing, but our strategic focus and related future development is in the area of improving the health for all human beings, and any related applications that may be created as we work to develop future materials to satisfy this growing area.
We continue to service other profitable markets where we have had a degree of success in the past, including applications in food packaging and coatings, but they are not our strategic focus and related future development in these areas are not being prioritized. Sources and Availability of Raw Materials Most of the raw materials we use are readily commercially available.
With our first Solésence beauty science product revenue recognized during 2017, we had our first material amounts of Solésence product revenue in 2018, and saw significant expansion in these sales through 2023.
With our first Solésence consumer product revenue recognized during 2017, we had our first material amounts of consumer product revenue in 2018, and saw significant expansion in these sales through 2024. Solésence brand partners have experienced strong growth as our products have seen broad acceptance from retailers, adoption by consumers, and recognition by third-party media outlets through awards and accolades.
In 2023, Solésence also won the 2023 BeautyMatter NEXT Award for Best Contract Manufacturer and was a winner of the 22nd Chicago Innovation Awards. Most recently, Solésence’s market-ready product Soft Glow SPF 50+ won the 2024 Cosmetics & Toiletries Allē Awards Best in Finished Formula-Prestige Category, spotlighting the ingenuity and creativity of our formulas.
In 2023, Solésence also won the 2023 Beauty Matter NEXT Award for Best Contract Manufacturer and was a winner of the 22nd Chicago Innovation Awards.
Solésence Beauty Science Business In 2020, Solésence beauty science finished products surpassed our personal care ingredients business in terms of total revenue, and since 2021, Solésence beauty science more than doubled our revenue from personal care ingredients. We believe that Solésence offers the greatest growth potential of any group of products in any market in the Company’s history.
We design and market flexible formulas that allow for adoption by a range of brands with different market positions. In 2020, consumer products surpassed our personal care APIs in terms of total revenue. We believe that Solésence consumer products offer the greatest growth potential of any product line in any market in the Company’s history.
The markets for both have shown an appetite for what we are producing, and management believes that this growth is happening now due to a confluence of our technology, market conditions that favor what we produce, and our expanded expertise in these areas.
Due to the expanding demand from our brand partners, we have further refined our strategy to reflect our view that consumer products should be the major focus of our growth strategy. Management believes that this growth is happening now due to a confluence of our technology and market conditions that favor the types of products we produce.
Due to the enhanced efficacy and aesthetic qualities offered by our proprietary technology platform, Solésence finished products satisfy growing consumer demands around “clean” and inclusive beauty. Solésence beauty science also benefits from the Company’s vertical integration with each product’s key active ingredient that delivers its point-of-difference.
Due to the enhanced efficacy and aesthetic qualities offered by our proprietary technology platform, Solésence consumer products satisfy growing consumer demands for “clean” and inclusive beauty across a range of product formats and categories. The vertically integrated nature of our Solésence consumer products helps us to develop ingredient technologies and formulas in tandem.
Solésence brand partners have experienced strong growth as our products have seen broad acceptance from retailers, adoption by consumers, and recognition by third-party media outlets through awards and accolades. We expect our Solésence beauty science business to enhance both our degree of control of the business development cycle, and to further enable our ability to grow rapidly.
We expect our consumer product group to enhance both our degree of control of the business development cycle, and to further enable our ability to grow rapidly.
Removed
We offer soup-to-nuts production, from engineered materials, formulation development, and finished product development, to commercial manufacturing and packaging capabilities.
Added
Item 1. General Company Background On March 7, 2025, Nanophase Technologies Corporation announced its rebranding as Solesence, Inc. (“Solésence,” “Company,” “we,” “our,” or “us”), marking a new chapter in its commitment to innovation, self-expression, and inclusivity in skin health. The company’s stock will continue to trade under the NANX ticker symbol. Its corporate website transitioned to solesence.com.
Removed
We believe that we have developed technological advantages with respect to our APIs sold for use as ingredients, while our Solésence beauty science technologies lead to enhanced efficacy and aesthetics in our finished products, which have received broad acceptance in the marketplace.
Added
Investor relations information, including historic Nanophase financials and disclosures, is available at ir.solesence.com. Nanophase Technologies Corporation changed its legal name to Solesence, Inc. by amending its certificate of incorporation with the state of Delaware on March 10, 2025.
Removed
This vertical integration helps us to improve efficiency and avoid potential major supply chain challenges while also addressing ongoing sustainability efforts. Polymerase Chain Reaction (“PCR”) testing for various viruses, most notably SARS-CoV-2 (“COVID-19”), has become a critical use of our technology in the life science space.
Added
We believe our innovative approach to creating these materials gives us technological and market advantages. We also leverage expertise to develop skin care, sun care, and color cosmetics products (“Solésence consumer products”) that offer unique skin health benefits.
Removed
We believe that our deep expertise in materials science has created advantages that enable performance in certain tests that may not be achievable through other materials. Outside of life science, we continue to sell advanced materials for use in legacy applications, all of which, along with medical diagnostics, currently fall into the advanced materials product category.
Added
We offer these for sale to brands who ultimately sell products to consumers in both prestige and mass markets within the beauty industry. Our Solésence consumer products have received broad acceptance in the marketplace.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeManagement Oversight Day-to-day management of cybersecurity threats is conducted by our information technology consultant which is charged with identifying and reporting threats to senior management. Board Oversight The Board of Directors is responsible for oversight of management’s efforts to eliminate cybersecurity risks.
Biggest changeManagement Oversight Day-to-day management of cybersecurity threats is conducted by our information technology consultant which is charged with identifying and reporting threats to senior management, which then reports to the Board of Directors. Board Oversight The Board of Directors is responsible for oversight of management’s efforts to eliminate cybersecurity risks.
We are not aware of having experienced any material cybersecurity incidents. We are not aware of any existent cybersecurity threats that would materially affect, or are reasonably likely to materially affect, our business strategy, results of operations or financial conditions.
We are not aware of having experienced any material cybersecurity incidents in 2024. We are not aware of any existent cybersecurity threats that would materially affect, or are reasonably likely to materially affect, our business strategy, results of operations or financial conditions.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Bolingbrook facility houses our warehousing operations, sunscreen lotions manufacturing, filling and assembly of our Solésence ® products and additional quality control spaces. The Bolingbrook facility is registered with the FDA for OTC drug manufacturing and packaging, site is registered under ISO 9001, ISO 22716 and ISO 14001. We lease our Romeoville, Burr Ridge and Bolingbrook facilities.
Biggest changeThe Bolingbrook facility houses our warehousing operations, sunscreen lotions manufacturing, dispersion manufacturing, filling and assembly of our Solésence ® products and additional quality control spaces.
Our actual future capacity requirements will depend on many factors, including new and potential customer acceptance of our current and potential engineered materials, applications and products, both expected and currently unplanned growth from existing customers, continued progress in our research and development activities and product testing programs and the magnitude of these activities and programs. 8
Our actual future capacity requirements will depend on many factors, including new and potential customer acceptance of our current and potential engineered materials, applications and products, both expected and currently unplanned growth from existing customers, continued progress in our research and development activities and product testing programs and the magnitude of these activities and programs.
We believe we will be able to expand certain operations, and consolidate others, to support additional growth in an economically efficient manner. We believe that our capital expenditures made in 2023, and projected for 2024, will support currently anticipated demand from existing and expected customers through 2024 and into 2025.
We believe we will be able to expand certain operations, and consolidate others, to support additional growth in an economically efficient manner. We believe that our capital expenditures made in 2024, and projected for 2025, will support currently anticipated demand from existing and expected customers through 2025 and into 2026.
Item 2. Properties We operate three facilities in the Chicago suburbs - a 36,000 square-foot production, research and headquarters facility in Romeoville, Illinois, a 20,000 square-foot production facility in Burr Ridge, Illinois and a 260,000 square-foot production and warehouse facility in Bolingbrook, Illinois.
Item 2. Properties We operate three facilities in the Chicago suburbs - a 36,000 square-foot production, research and headquarters facility in Romeoville, Illinois, a 20,000 square-foot production facility in Burr Ridge, Illinois and a 261,000 square-foot production and warehouse facility in Bolingbrook, Illinois.
With the addition of our new Bolingbrook space, we believe that our leased facilities will provide sufficient capacity to fulfill current known customer demand as well as allow for the creation of substantial additional space to enable expansion of key production processes.
With the addition of the Bolingbrook space in 2021, we believe that our leased facilities will provide sufficient capacity to fulfill current known customer demand as well as allow for the creation of substantial additional space to enable expansion of key production processes.
Removed
During October 2016 we entered into an amendment to our Industrial Lease Agreement for the facility in Romeoville, Illinois, which, among other things, extended the term of such lease through December 31, 2024.
Added
The Bolingbrook facility is registered with the FDA for OTC drug manufacturing and packaging, site is registered under ISO 9001, ISO 22716 and ISO 14001, and we believe that the particle coating processes used for our ingredients and fully formulated sunscreens and cosmetic products for personal care are in compliance with the cGMP requirements of the FDA.
Removed
On March 14, 2017, we entered into a new Building Lease for the Burr Ridge facility that began in September 2017, and after exercising the final lease extension, it now ends in September 2024.
Added
The Bolingbrook site is registered with the FDA for API manufacturing, manufacturing, and packaging. 8 We lease our Romeoville, Burr Ridge and Bolingbrook facilities. The Romeoville lease term was extended to January 31, 2028, in August 2024. The Burr Ridge lease term was extended to September of 2025.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThereafter, on February 28, 2023, Nanophase answered BASF’s New Jersey Complaint, denying all wrongdoing and, as mandated by New Jersey procedural requirements, filed two counterclaims: (1) a request for a declaration that contrary to BASF’s views, the exclusivity provision of the Agreement does not apply to all products containing zinc oxide as an ingredient for uses designated under the Agreement nor does the exclusivity provision prohibit Nanophase’s sales of Solésence products containing zinc oxide as an ingredient; and (2) a claim that BASF had breached its obligations under the Agreement to buy from Nanophase at least 70% of BASF’s zinc oxide requirements for use in the Field.
Biggest changeIn February 2023, the Company answered the New Jersey Complaint, denying all wrongdoing and filed counterclaims, including a request for a declaration that contrary to BASF’s views, the exclusivity provision of the Agreement does not apply to all products containing zinc oxide for uses in the Field nor does the exclusivity provision prohibit the Company’s sales through Solésence of products containing zinc oxide as an ingredient.
The New Jersey Complaint specifically alleges that Nanophase breached the exclusivity provision of the Agreement by selling zinc oxide to entities other than BASF, including sales to Nanophase’s subsidiary Solésence, LLC (“Solésence”), in markets designated as being in the field of use (the “Field”) under the Agreement.
The New Jersey Complaint specifically alleged that the Company had breached the exclusivity provision of the Agreement by selling zinc oxide to entities other than BASF, including sales to the Company’s subsidiary Solésence, LLC (“Solésence”), in markets designated as being in the field of use (the “Field”) under the Agreement.
The August 31, 2022 letter from BASF’s lawyers was Nanophase’s first notice of the New Jersey Complaint. The New Jersey Complaint claims that Nanophase breached the Zinc Oxide Supply Agreement dated as of September 16, 1999 between Nanophase and BASF, as assignee, as amended through January 1, 2019 (the “Agreement”).
Legal Proceedings As previously disclosed, in August 2022, BASF Corporation (“BASF”) filed a complaint against the Company (the “New Jersey Complaint”) in the Superior Court of New Jersey (“SCNJ”) alleging that the Company breached the Zinc Oxide Supply Agreement dated as of September 16, 1999 between the Company and BASF, as assignee, as amended through January 1, 2019 (the “Agreement”).
Removed
Legal Proceedings On August 31, 2022, counsel for Nanophase Technologies Corporation (“Nanophase”) received a letter from lawyers representing BASF Corporation (“BASF”) stating that BASF had filed a complaint against Nanophase in the Superior Court of New Jersey (“SCNJ”) on August 9, 2022 (the “New Jersey Complaint”) and that Nanophase’s registered agent for service of process had been served with the New Jersey Complaint on August 11, 2022.
Added
Following certain discovery, rulings on several motions, and the parties’ extensive negotiations, the Company and BASF entered into a Settlement Agreement and General Release on April 10, 2024 (the “Settlement Agreement”), providing for settlement of the New Jersey Complaint and resolution of the parties’ disputes.
Removed
The New Jersey Complaint also relatedly alleges that Nanophase breached the capacity and inventory provisions of the Agreement. In addition, the New Jersey Complaint alleges claims for unjust enrichment and violation of the duty of good faith and fair dealing. The New Jersey Complaint seeks an unspecified amount of damages, a permanent injunction, counsel fees, and litigation expenses.
Added
Under the Settlement Agreement, the Company and BASF agreed to enter into the Amendment (defined below) in exchange for (i) a mutual release of all claims related to the New Jersey Complaint and any claims based on similar facts or legal theories (collectively, the “Claims”), (ii) the filing of a Stipulation of Dismissal with the SCNJ voluntarily dismissing the New Jersey Complaint with prejudice, (iii) mutual covenants by the Company and BASF not to sue the other party for the Claims, (iv) the Company and BASF entering into the Modified Product MOU (defined below), (v) mutual indemnification as to certain claims arising out of the making, use, purchase, sale, or development of products in connection with the Modified Product MOU, and (vi) provisions regarding confidentiality of settlement terms and other customary settlement terms.
Removed
The New Jersey Complaint is not seeking termination of the Agreement. Management believes that the allegations of BASF’s New Jersey Complaint are without merit and are unsupported by the terms of the Agreement and governing law.
Added
The Stipulation of Dismissal was filed with the SCNJ on April 11, 2024, thereby concluding the New Jersey Complaint.
Removed
On September 8, 2022, Nanophase filed a Motion to Dismiss (“MTD”) the New Jersey Complaint with the SCNJ, arguing that BASF’s claims in its New Jersey Complaint are not supported by the terms of the Agreement.
Added
In connection with the Settlement Agreement, the Company and BASF entered into Amendment No. 5 (the “Amendment”) to the Agreement, and a Binding Memorandum of Understanding regarding the Company using its commercially reasonable efforts to develop a modified zinc oxide product for BASF’s exclusive purchase under the Agreement (the “Modified Product MOU”).
Removed
Following completion of briefing and a hearing on the MTD, the SCNJ denied Nanophase’s MTD on February 10, 2023, finding that under the “liberality” standards of New Jersey procedure, the allegations of BASF’s complaint were “sufficient to survive” the MTD. The SCNJ specifically noted that it did not consider whether BASF could prove its claims.
Added
The Amendment includes provisions (a) amending the exclusivity section of the Agreement to provide that (i) BASF has the exclusive right to use zinc oxide materials that the Company develops, makes, or sells to BASF as an ingredient for uses in the Field, and (ii) the Company or its affiliates, including Solésence, can supply and sell both certain finished products containing zinc oxide for use in the Field to customers anywhere in the world and certain zinc oxide dispersions that the Company developed or develops for a particular customer, and (b) amending the provisions of the Agreement concerning order forecasting and procedures, operational planning, inventory and capacity requirements, and periodic facility shutdown arrangements, to more effective serve each party’s business needs with respect to all product that BASF purchases from the Company under the Agreement.
Removed
On April 17, 2023, BASF moved to dismiss Nanophase’s counterclaims, arguing that the declaratory judgment claim duplicated BASF’s claim for Nanophase’s alleged breach of contract and Nanophase’s claim for BASF’s breach of its zinc oxide purchase requirements was procedurally insufficient.
Removed
Following briefing and a hearing on October 6, 2023, the SCNJ: (1) denied BASF’s motion to dismiss Nanophase’s declaratory judgment counterclaim, finding that it did not duplicate BASF’s breach of contract claim and that BASF’s litigating its claim would not provide Nanophase with complete relief as to the exclusivity issues raised in the counterclaim; and (2) granted BASF’s motion to dismiss Nanophase’s claim for BASF’s breach of its zinc oxide purchase requirements on procedural grounds.
Removed
On October 31, 2023, BASF filed its answer to Nanophase’s declaratory judgment counterclaim, denying the counterclaim. Discovery in the New Jersey litigation is ongoing. On September 7, 2022, Nanophase filed a Complaint for Declaratory Judgment against BASF in the Circuit Court of Cook County, Illinois (the “Illinois Complaint”).
Removed
The Illinois Complaint asked the court for a declaration similar to that subsequently sought in Nansphase’s counterclaim in the New Jersey litigation. On November 3, 2022, BASF moved to dismiss Nanophase’s Illinois Complaint, arguing that it duplicates the New Jersey litigation. Following briefing and a hearing, the Illinois court granted BASF’s motion on procedural grounds on March 16, 2023.
Removed
Given our view, we have decided that it is not appropriate to record a contingent liability relating to these actions at this time. Nanophase intends to continue negotiating with BASF in good faith to resolve these issues. In the event that an acceptable solution is not reached, and litigation proceeds, the ultimate resolution cannot now be determined with certainty.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth, for the periods indicated, the range of high and low sale prices for our common stock on the OTCQB marketplace: High Low Fiscal year ended December 31, 2023: First Quarter $ 1.79 $ 1.08 Second Quarter 1.45 0.50 Third Quarter 1.40 0.88 Fourth Quarter 1.00 0.55 Fiscal year ended December 31, 2022: First Quarter $ 4.42 $ 2.04 Second Quarter 3.45 2.51 Third Quarter 3.25 2.32 Fourth Quarter 2.50 1.12 On March 27, 2024, the last reported sale price of our common stock was $0.72 per share, and there were 121 holders of record of our common stock.
Biggest changeThe following table sets forth, for the periods indicated, the range of high and low sale prices for our common stock on the OTCQB marketplace: High Low Fiscal year ended December 31, 2024: First Quarter $ 0.98 $ 0.43 Second Quarter 1.71 0.70 Third Quarter 1.65 1.33 Fourth Quarter 2.88 1.30 Fiscal year ended December 31, 2023: First Quarter $ 1.79 $ 1.08 Second Quarter 1.45 0.50 Third Quarter 1.40 0.88 Fourth Quarter 1.00 0.55 On March 28, 2025, the last reported sale price of our common stock was $2.09 per share, and there were 120 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeWe expect expenses for research and development to continue to increase depending on growth in our Solésence line of products, and related technologies. This expense growth will be dependent upon the success we have in developing new products, which adds significantly to outside testing fees to both enhance product development and comply with regulatory requirements.
Biggest changeThis expense growth will be dependent upon the success we have in developing new products, which adds significantly to outside testing fees to both enhance product development and comply with regulatory requirements. Selling, general and administrative expense decreased to $7,219,000 in 2024, compared to $7,534,000 in 2023. The net decrease was largely attributed to a decrease in legal costs.
At any time and from time to time, in whole or in part, following the Company properly filing an amendment (the “Certificate Amendment”) to its Certificate of Incorporation to increase the number of authorized shares of its Common Stock from 60,000,000 to 95,000,000, each share of Series X Preferred Stock is convertible, at the option of the holder, into 1,000 shares of Common Stock at no additional cost.
At any time and from time to time, in whole or in part, following the Company properly filing an amendment (the “Certificate Amendment”) to its Certificate of Incorporation to increase the number of authorized shares of its Common Stock from 60,000,000 to 95,000,000, each share of Series X Preferred Stock was convertible, at the option of the holder, into 1,000 shares of Common Stock at no additional cost.
Holders of Series X Preferred Stock (i) are not entitled to receive dividends, subject to customary anti-dilution protections, (ii) have no voting rights, and (iii)receive a liquidation preference of $400 per share. The Series X Preferred Stock ranks senior in right of payment to all securities designated as junior securities, including Common Stock.
Holders of Series X Preferred Stock (i) were not entitled to receive dividends, subject to customary anti-dilution protections, (ii) have no voting rights, and (iii)receive a liquidation preference of $400 per share. The Series X Preferred Stock ranks senior in right of payment to all securities designated as junior securities, including Common Stock.
We expect to continue to focus on reducing controllable variable product manufacturing costs, with potential variability related to the commodity metals markets and cost and wage inflation but may or may not realize gross margin percentage growth through 2024 and beyond, dependent upon the factors discussed above.
We expect to continue to focus on reducing controllable variable product manufacturing costs, with potential variability related to the commodity metals markets and cost and wage inflation but may or may not realize gross margin percentage growth through 2025 and beyond, dependent upon the factors discussed above.
We expect supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, may have a material effect on our operations and financial position in 2024 and beyond. We will apply our best efforts to pass through cost increases to our customers.
We expect supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, may have a material effect on our operations and financial position in 2025 and beyond. We will apply our best efforts to pass through cost increases to our customers.
While we have seen costs continue to increase on an inflationary basis as we enter 2024, it is our belief that we will be able to offset much of this cost as we gain greater production efficiencies and seek to increase our pricing where possible.
While we have seen costs continue to increase on an inflationary basis as we enter 2025, it is our belief that we will be able to offset much of this cost as we gain greater production efficiencies and seek to increase our pricing where possible.
We expect to continue new materials development and dispersion technologies for personal care applications and for our formulated Solésence products during 2024 and beyond, as part of our business model.
We expect to continue new materials development and dispersion technologies for personal care applications and for our formulated Solésence products during 2025 and beyond, as part of our business model.
In Company-wide operations, we believe inflation has not had a material effect on our operations or financial position for 2023, although we have seen increases in our costs.
In Company-wide operations, we believe inflation has not had a material effect on our operations or financial position for 2024, although we have seen increases in our costs.
For so long as any amount of Preferred Stock is outstanding, the Purchase Agreement also (i) prevents the Company from paying any dividend on any shares of the Company’s capital stock (other than dividends consisting solely of Common Stock or rights to purchase Common Stock), (ii) prevents the Company from repurchasing any Common Stock, and (iii) subject to certain permitted exceptions, restricts the Company’s ability to permit any lien or other encumbrance on Company assets.
For so long as any amount of Preferred Stock is outstanding, the Purchase Agreement also (i) prevented the Company from paying any dividend on any shares of the Company’s capital stock (other than dividends consisting solely of Common Stock or rights to purchase Common Stock), (ii) prevented the Company from repurchasing any Common Stock, and (iii) subject to certain permitted exceptions, restricted the Company’s ability to permit any lien or other encumbrance on Company assets.
On December 31, 2023, the balance on the Term Loan was $1,000,000, the balance on the A/R Revolver Facility was $2,810,000, the balance on the Inventory Facility was $5,000,000, and the balance on the Bridge Note was $2,000,000.
On December 31, 2023, the balance on the Term Loan was $1,000,000, the balance on the Bridge Load was $2,000,000, the balance on the A/R Revolver Facility was $2,810,000, and the balance on the Inventory Facility was $5,000,000.
Internal Revenue Code (“IRC”) in connection with any future equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, $44 million of this loss carryforward will expire between 2024 and 2037.
Internal Revenue Code (“IRC”) in connection with any future equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, $36 million of this loss carryforward will expire between 2025 and 2037.
Our actual future capital requirements in 2024 and beyond will depend on many factors, including customer acceptance of our current and potential finished Solésence products, APIs sold as ingredients in to the skin health markets, medical diagnostics ingredients, and other engineered materials, applications, and products, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand our manufacturing capabilities and to market and sell these products and ingredients.
Our actual future capital requirements in 2025 and beyond will depend on many factors, including customer acceptance of our current and potential consumer products, APIs sold as ingredients in to the skin health markets, medical diagnostics ingredients, and other engineered materials, applications, and products, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand our manufacturing capabilities and to market and sell these products and ingredients.
In addition, in the event of a Change in Control (as defined in the Certificate of Designations) of the Company, each share of the Series X Preferred Stock is redeemable at the option of the holder, without penalty or premium, at a redemption price equal to $420 per share.
In addition, in the event of a Change in Control (as defined in the Certificate of Designations) of the Company, each share of the Series X Preferred Stock would have been redeemable at the option of the holder, without penalty or premium, at a redemption price equal to $420 per share.
Cash capital expenditures amounted to approximately $1,051,000 and $2,823,000 for the years ended December 31, 2023 and 2022, respectively. We did not dispose of or sell any assets during 2023 or 2022. The Company maintains a credit agreement with Libertyville to support our obligations under our newly leased manufacturing and warehouse space in Bolingbrook, Illinois.
Cash capital expenditures amounted to approximately $4,558,000 and $1,051,000 for the years ended December 31, 2024 and 2023, respectively. We did not dispose of or sell any assets during 2024 or 2023. The Company maintains a credit agreement with Libertyville to support our obligations under our leased manufacturing and warehouse space in Bolingbrook, Illinois.
If the Company has not properly filed, upon shareholder approval, the Certificate Amendment on or before August 1, 2024, then each share of Series X Preferred Stock will be redeemable at the holder’s option, in whole or in part, without penalty or premium, at a redemption price equal to $420 per share (each, a “Redemption”).
If the Company had not properly filed, upon shareholder approval, the Certificate Amendment on or before August 1, 2024, then each share of Series X Preferred Stock would have been redeemable at the holder’s option, in whole or in part, without penalty or premium, at a redemption price equal to $420 per share (each, a “Redemption”).
Depending on the success of certain projects, we expect that capital spending relating to currently known capital needs for 2024 will be between $1 million and $5 million, to be funded by profit from operations, our existing loans and lines of credit, and possible new financing.
Depending on the success of certain projects, we expect that capital spending relating to currently known capital needs for 2025 will be between $6 million and $8 million, to be funded by profit from operations, our existing loans and lines of credit, and possible new financing.
Our primary skin health products are fully developed prestige skin care formulations with mineral-based UV protection, marketed and sold through our Solésence beauty science subsidiary, enabled by our proprietary Active Pharmaceutical Ingredients (“APIs”), which are also marketed as APIs for sale to manufacturers of other types of skin health products, including sunscreens and daily care products.
Our primary skin health products are fully developed prestige skin care formulations with mineral-based UV protection enabled by our proprietary Active Pharmaceutical Ingredients (“APIs”), which are also marketed as APIs for sale to manufacturers of other types of skin health products, including sunscreens and daily care products.
In the application of this policy in 2023, management deemed a portion of inventory will likely experience such an impairment and elected to apply a $677,000 inventory reserve in anticipation.
In the application of this policy in 2024, management deemed a portion of inventory will likely experience such an impairment and elected to apply a $1,987,000 inventory reserve in anticipation.
The Loan Agreements changed the terms of both the Company’s asset-based revolving loan facility (the “A/R Revolver Facility”) and the secured advance (the “Term Loan”, which was assigned from Beachcorp, LLC to Strandler, LLC) under the Master Agreement and provide a new asset-based revolving loan facility based on inventory (the “Inventory Facility”).
Janet Whitmore, a director of the Company and the chair of the Company’s board of directors. 12 The Loan Agreements changed the terms of both the Company’s asset-based revolving loan facility (the “A/R Revolver Facility”) and the secured advance (the “Term Loan”, which was assigned from Beachcorp, LLC to Strandler, LLC) under the Master Agreement and provide a new asset-based revolving loan facility based on inventory (the “Inventory Facility”).
Our efforts in research and development, cosmetic formulating, process engineering and advanced engineering groups are focused in three major areas: 1) application development for our products; 2) creating or obtaining additional core materials technologies and/or materials that have the capability to serve multiple skin health-related markets; and 3) continuing to improve our core technologies to improve manufacturing operations and reduce costs.
Our efforts in research and development, cosmetic formulating, process engineering and advanced engineering groups are focused in three major areas: 1) application development for our products; 2) creating or obtaining additional core materials technologies and/or materials that have the capability to serve multiple skin health-related markets; and 3) continuing to improve our core technologies to improve manufacturing operations and reduce costs. 11 Research and development expense remained the same in 2024, totaling $3,837,000, the same as in 2023.
Given changes to the IRC, net operating loss carryforwards generated after January 1, 2018 do not expire, therefore, $5.6 million in net operating losses generated since January 1, 2018 do not expire. We have Illinois net loss deduction carryforwards for tax purposes of approximately $21.3 million on December 31, 2023.
Given changes to the IRC, net operating loss carryforwards generated after January 1, 2018 do not expire, therefore, $6.8 million in net operating losses generated since January 1, 2018 do not expire. We have Illinois net loss deduction carryforwards for tax purposes of approximately $18.2 million on December 31, 2024.
If the Company fails to fully pay any Redemption within five days of receiving notice, all unpaid amounts will bear interest at a rate of 10% per annum.
If the Company had failed to fully pay any Redemption within five days of receiving notice, all unpaid amounts will have born interest at a rate of 10% per annum.
Beachcorp, LLC and Strandler, LLC are affiliates of Mr. Bradford T. Whitmore, who beneficially owns a majority of the Company’s common stock and is the brother of Ms. R. Janet Whitmore, a director of the Company and the chair of the Company’s board of directors.
Beachcorp, LLC and Strandler, LLC are affiliates of Mr. Bradford T. Whitmore, who beneficially owns a majority of the Company’s common stock and is the brother of Ms. R.
Results of Operations Years Ended December 31, 2023 and 2022 Total revenue decreased to $37,297,000 in 2023, compared to $37,317,000 in 2022. A substantial majority of our revenue for each year is from our largest customers, in particular, sales to our largest customer in skin care and sunscreen applications, finished skin health products marketed through our Solésence beauty science subsidiary.
Results of Operations Years Ended December 31, 2024 and 2023 Total revenue increased to $52,347,000 in 2024, compared to $37,297,000 in 2023. A substantial majority of our revenue for each year is from our largest customers, in particular, sales to our largest customer in skin care and sunscreen applications, finished skin health products marketed through our consumer products.
Liquidity and Capital Resources Cash, cash proceeds and use of cash for 2023 and 2022 were: For the year ended December 31, 2023 2022 Total cash $ 1,722,000 $ 2,186,000 Cash used in operating activities (2,006,000 ) (1,650,000 ) Net cash used in investing activities (1,051,000 ) (2,823,000 ) Net cash provided by financing activities 2,593,000 6,002,000 The $354,000 year-over-year increase in cash used in operating activities for the year ended December 31, 2023 was mainly due to the Company incurring $4,390,000 in net loss in 2023 compared to $2,623,000 in net income in 2022.
Liquidity and Capital Resources Cash, cash proceeds and use of cash for 2024 and 2023 were: For the year ended December 31, 2024 2023 Total cash $ 1,409,000 $ 1,722,000 Cash provided by (used in) operating activities 1,971,000 (2,006,000 ) Net cash used in investing activities (4,558,000 ) (1,051,000 ) Net cash provided by financing activities 2,274,000 2,593,000 The $3,977,000 year-over-year increase in cash provided by operating activities for the year ended December 31, 2024 was mainly due to the Company earning $4,235,000 in net income in 2024 compared to $4,390,000 in net loss in 2023.
See the “Forward Looking Statements” section in Part 1, Item 1, of this Form 10-K. Overview Nanophase is a health-oriented, science-driven company, which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused on various beauty- and life-science markets.
See the “Forward Looking Statements” section in Part 1, Item 1, of this Form 10-K. Overview Solésence is a health-oriented, science-driven company, focused on various skin health and beauty markets.
The terms of the Preferred Stock are set forth in the Company’s Certificate of Designations to its Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on March 4, 2024 (the “Certificate of Designations”). 13 Under the Purchase Agreement, the Company granted Strandler customary registration rights with respect to shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), it may receive in connection with any conversion of Series X Preferred Stock into Common Stock, as described below.
Under the Purchase Agreement, the Company granted Strandler customary registration rights with respect to shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), it may receive in connection with any conversion of Series X Preferred Stock into Common Stock, as described below.
Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2029 and 2042. 14 As a result of the annual limitation and uncertainty as to the amount of future taxable income that will be earned prior to the expiration of the carryforward, we have concluded that it is likely that some portion of this carryforward will expire before ultimately becoming available to reduce income tax liabilities.
As a result of the annual limitation and uncertainty as to the amount of future taxable income that will be earned prior to the expiration of the carryforward, we have concluded that it is likely that some portion of this carryforward will expire before ultimately becoming available to reduce income tax liabilities. Item 7A.
Additionally, we continue to sell products in legacy markets including architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, and surface finishing technologies (polishing) applications— all of which, along with medical diagnostics, currently fall into the advanced materials product category.
Additionally, we continue to sell products in legacy markets including medical diagnostics, architectural coatings, industrial coating applications, abrasion-resistant additives, and plastics additives applications— all of which currently fall into the advanced materials product category. 10 Critical Accounting Estimates Management also monitors the value of inventory for the effects of aging, obsolescence, and seasonality.
The A/R Revolver Facility, the Inventory Facility and the Term Loan are all secured by all the unencumbered assets of the Company and subordinated to the Company’s revolving line of credit with Libertyville Bank & Trust. On November 13, 2023 to support working capital demands the Company entered into (i) a new Promissory Note (“Bridge Note”) with Strandler, LLC,.
The A/R Revolver Facility, the Inventory Facility and the Term Loan are all secured by all the unencumbered assets of the Company and subordinated to the Company’s revolving line of credit with Libertyville Bank & Trust.
The interest expense for 2023 and 2022 related to interest paid relating to our revolving lines of credit for working capital funding, and finance leases and term loans supporting some of our equipment.
Interest expense decreased to $670,000 in 2024, compared to $838,000 in 2023, due to lower interest rates in 2024 and decreased usage of the debt facilities. The interest expense for 2024 and 2023 related to interest paid relating to our revolving lines of credit for working capital funding and term loans supporting some of our equipment.
We will be expanding parts of our administrative functions, including related staffing additions. The extent to which this increase occurs will be dependent upon growth. Interest expense increased to $838,000 in 2023, compared to $382,000 in 2022, due to higher interest rates in 2023 and increased usage of the debt facilities.
We expect 2025 expenses in this area to be slightly higher due to expanding parts of our administrative functions, including related staffing additions. The extent to which this increase occurs will be dependent upon growth.
Product revenue, the primary component of our total revenue, decreased to $36,641,000 in 2023, compared to $36,731,000 in 2022. This slight decrease was due to a decrease in revenue from our personal care business and a medical diagnostics materials customer (within our advanced materials business).
Product revenue, the primary component of our total revenue, increased to $51,890,000 in 2024, compared to $36,641,000 in 2023. This increase was due to an increase in revenue from our consumer products partially offset by decreased personal care ingredients and advanced materials products.
Current Significant Customers 2023 2022 Largest Personal Care Customer 25 % 30 % Solésence Customer - 1 17 % 17 % Solésence Customer - 2 15 % 15 % Significant Customer Total 57 % 62 % 11 Cost of revenue generally includes costs associated with commercial production and customer development arrangements.
Current Significant Customers For the years ended December 31, Customer # Product Category 2024 2023 1 Consumer Products 32 % 17 % 2 Personal Care Ingredients 13 % 25 % 3 Consumer Products 7 % 15 % Total 52 % 57 % Cost of revenue generally includes costs associated with commercial production and customer development arrangements.
As of December 31, 2023 there was no outstanding borrowings on this line of credit. This credit agreement has a maturity of December 22, 2024. 12 On November 16, 2018, we entered into a Business Loan Agreement (the “Master Agreement”) with Beachcorp, LLC.
As of December 31, 2024 there was no outstanding borrowings on this line of credit. This credit agreement has a maturity of December 22, 2025.
We have federal net operating loss carryforwards for tax purposes of approximately $50 million on December 31, 2023. We have section 179 carryforwards of approximately $0.2M at December 31, 2023. Because the Company may experience “ownership changes” within the meaning of the U.S.
Similarly, substantial success in business development projects may cause the actual 2025 capital investment to exceed the top of this range. We have federal net operating loss carryforwards for tax purposes of approximately $42 million on December 31, 2024 Because the Company may experience “ownership changes” within the meaning of the U.S.
The interest rate for the Bridge Note is at the prime rate plus 0.75%, and it matures on May 13, 2024, and (ii) amendments to the Loan Agreements increasing increasing the principal amount of the Inventory Facility to $5,200,000 and extending the maturity date under the Loan Agreement to March 31, 2025.
On November 13, 2023 to support working capital demands the Company entered into (i) a new Promissory Note (“Bridge Note”) with Strandler, LLC, with a maximum borrowing amount of $2,000,000, interest rate at the prime rate plus 0.75%, and set to mature on May 13, 2024, and (ii) amendments to the Loan Agreements increasing the principal amount of the Inventory Facility to $5,200,000, increased the borrowing base to 55% of eligible inventory, up from 50% and extending the maturity date under the Loan Agreement to March 31, 2025.
Cost of revenue increased to $29,472,000 in 2023, compared to $28,957,000 in 2022. The increase in cost of revenue was primarily driven by the higher management costs related to the production processes.
Cost of revenue increased to $36,159,000 in 2024, compared to $29,472,000 in 2023. The increase in cost of revenue was primarily driven by higher materials and direct labor costs related to the increased sales volume. Also contributing to the higher cost of revenue was increased costs associated with supply chain and maintenance activities costs due to the increased sales volume.
On December 31, 2022, the balance on the Term Loan was $1,000,000, the balance on the A/R Revolver Facility was $4,282,000, and the balance on the Inventory Facility was $3,000,000. On March 1, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), between the Company and Strandler, LLC (“Strandler”).
The Bridge Note was repaid in full in connection with the Purchase Agreement referred to below. On March 1, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), between the Company and Strandler, LLC (“Strandler”).
Management also monitors the value of inventory for the effects of aging, obsolescence, and seasonality. Consistent with the provisions in FASB ASC 330-10-35, we adjust inventory valuation upon management’s determination that the net realizable value of our inventory, which applies the average cost method, is lower than its historic cost.
Consistent with the provisions in FASB ASC 330-10-35, we adjust inventory valuation upon management’s determination that the potential for obsolete materials exist. The majority of the reserve is done by specific identification. Factors include inventory in quarantine, aging finished goods or obsolete materials as identified by management.
Removed
In terms of the balance of our life sciences focus, we have seen continued demand for our medical diagnostics ingredients, which are used in testing for various viruses, most notably COVID-19.
Added
In 2024 labor costs were higher than 2023 which were offset by lower legal and consulting costs in 2024 compared to 2023. We expect expenses for research and development to increase slightly in 2025 depending on growth in our Solésence line of products, and related technologies.
Removed
Critical Accounting Estimates We review long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. We conduct long-lived asset impairment analyses in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360-10-15, Impairment or Disposal of Long-Lived Assets .
Added
The terms of the Preferred Stock are set forth in the Company’s Certificate of Designations to its Certificate of Incorporation, filed with the Secretary of State of the State of Delaware on March 4, 2024 (the “Certificate of Designations”).
Removed
ASC 360-10-15 requires us to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows.
Added
On June 18, 2024, the Company held a special meeting of stockholders where the Certificate Amendment was approved. The Certificate Amendment was filed with the State of Delaware on June 19, 2024. On June 20, 2024, Strandler converted its 15,000 shares of Series X Preferred Stock to 15,000,000 shares of Common Stock.
Removed
If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. 10 Other critical estimates include the allowance for doubtful accounts applied against our receivables balance as well as an inventory reserve.
Added
As of December 31, 2024, the Company’s A/R Revolver, Inventory Facility and New Term Loan matured on October 1, 2025.
Removed
In the determination of a reserve to apply toward receivables, management considered provisions in FASB ASC 326 & ASC 450-20-25 regarding the recognition of loss contingencies and applied a reserve balance against gross receivables to arrive at the net reported balance.
Added
Since then, the Company’s related party debt holder for the A/R Revolver, Inventory Facility and New Term Loan has committed to refinancing the debt with a new maturity date after April 1, 2026. 13 On December 31, 2024, the balance on the Term Loan was $1,000,000, the balance on the A/R Revolver Facility was $0, the balance on the Inventory Facility was $4,000,000.
Removed
Under the guidance referenced above, management judgmentally applied an estimate of the portion of gross receivables for which loss is both probable and can be reasonably estimated and accrued a loss contingency by a charge to income. A bad debt reserve of $225,000 and $139,000 was applied to gross receivables for 2023 and 2022, respectively.
Added
Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2030 and 2043.
Removed
Particularly with respect to customers of our Solésence beauty science subsidiary, it can be difficult to estimate collectability. We frequently require significant deposits from customers before ordering materials and scheduling production. This serves as a good indicator of the customer’s wherewithal to pay for the balance of the product when shipped.
Added
Quantitative and Qualitative Disclosures About Market Risk Not required for a smaller reporting company.
Removed
In cases where it is difficult to establish creditworthiness, we require payment of the full amount before we ship. Notwithstanding these credit security measures, we frequently find that pay cycles get extended for reasons that can be outside of our control.
Removed
The nature of the business is that there are many product launches, often by smaller or start-up companies, that may not result in initial commercial success. This has resulted in extensions of payment terms, but collectability has ultimately occurred in most cases. As our Solésence beauty science subsidiary grows, we will monitor this closely and adjust estimates as necessary.
Removed
Lower-than-expected volume in the fourth quarter of 2023, write-downs of obsolete inventory, reduction in contract revenue (which generally has little direct cost associated with it), and changes in product mix, added to relative increases in cost of revenue. All of these factors contributed to a reduction of overall gross margin percentage by 1% when compared to 2022.
Removed
Research and development expense increased to $3,837,000 in 2023, compared to $3,037,000 in 2022. The primary reasons for this were increases in compensation expense and headcount, outside testing, and materials charges associated with the development and launch of our Solésence line of personal care products and related capabilities.
Removed
Selling, general and administrative expense decreased to $7,534,000 in 2023, compared to $7,581,000 in 2022. The net decrease was largely attributed to a decrease in professional services. We expect 2024 expenses in this area to be slightly lower, even if growth continues as planned due to expected decreased legal costs.
Removed
The Master Agreement relates to two loan facilities, each evidenced by a separate promissory note dated as of November 16, 2018: a term loan to the Company of up to $500,000 to be disbursed in a single advance (the “Term Loan”) with a fixed annual interest rate of 8.25%, payable quarterly, and with principal due on December 31, 2020; and an asset-based revolving loan facility for the Company of up to $2,000,000 (the “A/R Revolver Facility”), with floating interest accruing at the prime rate plus 3% (8.25% minimum) per year, with a borrowing base consisting of qualified accounts receivable of the Company, and a maturity of March 31, 2020, as amended.
Removed
On March 23, 2020, the Company and Beachcorp, LLC executed the First Amendment to our Master Agreement that extended the maturities of both the Term Loan and the A/R Revolver Facility to March 31, 2021.
Removed
Effective September 8, 2020, the Company and Beachcorp, LLC executed the Second Amendment to our Master Agreement that expanded the limit on the A/R Revolver Facility from $2,000,000 to $2,750,000.
Removed
On December 23, 2020, the Company and Beachcorp, LLC executed the Third Amendment to our Master Agreement that expanded the limit on the A/R Revolver Facility from $2,750,000 to $4,000,000 and extended the maturities of both the Term Loan and the A/R Revolver Facility to March 31, 2022.
Removed
Effective April 21, 2021 the Company and Beachcorp, LLC executed the Fourth Amendment to our Master Agreement that expanded the limit on the A/R Revolver Facility from $4,000,000 to $6,000,000, changed the interest rate to fully floating and reduced the rate to the prime rate plus 2%, also extending the maturity of the A/R Revolver Facility to March 31, 2023.
Removed
This amendment also increased the amount of the Term Loan from $500,000 to $1,000,000, changed the interest rate to fully floating and reduced the rate to the prime rate plus 2%. The maturity of the Term Loan remained March 31, 2022.
Removed
The maximum borrowing amount under the Bridge Note is $2,000,000.
Removed
Similarly, substantial success in business development projects may cause the actual 2024 capital investment to exceed the top of this range. The Company currently has two areas within its strategic plan that will result in material cash requirements that could have an impact on operations.
Removed
We have several operating leases (see note 6 to the financial statements) for our facilities that require us to increase our cash outlays for facilities expenses significantly beginning in 2022. The 260,000 square foot facility we leased in December 2021 exceeds our current needs for space considerably. We consequently have sublet a portion of the facility on shorter term leases.
Removed
We are growing rapidly and continue to expect significant growth going forward. We will also consolidate some of our facilities to mitigate costs.
Removed
Our view was that a lack of space would have hindered our ability to continue to grow, as well as making it difficult to satisfy existing customer demands on a timely basis if we couldn’t expand our production footprint.
Removed
We have estimated our future growth through a combination of industry experience, customer feedback, market intelligence, and our successful history in commercializing new products. Sales of our Solésence products have roughly tripled between 2019 and 2021, increased by 27% in 2022, and increased by 9% in 2023 to reach $25 million annually.
Removed
We expect this growth to continue, albeit at less than a multiple of each year’s sales going forward. Many of these estimates are qualitative in nature, but are informed by experience.
Removed
If we were to not grow more than incrementally in 2024, we would need to re-evaluate our expansion strategy in light of the increases in our facilities costs that extend for as much as ten years into the future. Similarly, our capital spending plan for 2024 will amount to between $1 million and $5 million.
Removed
We expect our capital spending to increase further in 2025 and 2026. At December 31, 2023, our commitments to equipment suppliers relate mainly to the $1 million of construction in progress, much of which reflects deposits on to-be-delivered equipment. We estimate the unpaid committed capital relating to capital spending to be less than $1 million as of December 31, 2023.

Other SLSN 10-K year-over-year comparisons