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 UNITED
STATES

 SECURITIES
AND EXCHANGE COMMISSION

 Washington,
D.C. 20549

 FORM

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For
the fiscal year ended December 31, 2023

 or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 FOR
THE TRANSITION PERIOD FROM_____ TO_____

 COMMISSION
FILE NUMBER 000-22333

 (Exact
name of registrant as specified in its charter)

 Delaware

 36-3687863

 (State
 or other jurisdiction

 (I.R.S.
 Employer Identification No.)

 of
 incorporation or organization)

 1319
Marquette Drive, Romeoville, Illinois 60446

 (Address
of principal executive offices) (zip code)

 Registrant's
telephone number, including area code: (630) 771-6708

 Securities
registered pursuant to Section 12(b) of the Act: None

 Securities
registered pursuant to Section 12(g) of the Act:

 Common
Stock, par value $.01 per share

by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
 No

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
 No

by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes No

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

 Large
 accelerated filer

 Accelerated
 filer

 Non-accelerated
 filer

 Smaller
 reporting company

 Emerging
 growth company

 If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.

 If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements.

by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 The
aggregate market value of the registrant's voting stock held by non-affiliates of the registrant based upon the last reported
sale price of the registrant's common stock on June 30, 2023 was $ 23,412,675 as of such date.

 The number of shares outstanding of the registrant's common stock, par value $.01, as of March 28, 2024 was 54,801,834.

 DOCUMENTS
INCORPORATED BY REFERENCE

 None.

 Item
 1.

 General

 Company Background

 Sol sence Beauty Science Business

 Personal Care Ingredients Business

 Advanced Materials Business

 Sources and Availability of Raw Materials

 Markets and Distribution

 Research and Development

 Competitive Advantage

 Manufacturing Operations

 Intellectual Property and Proprietary Rights

 Competition

 Governmental Regulations, Including Climate Change

 Employees

 Backlog

 Business Segment and Geographical Information

 Key Customers

 Forward-Looking Statements

 Investor Information

 Item
 1A.

 Risk Factors

 Item
 1B.

 Unresolved Staff Comments

 Item
 1C.

 Cybersecurity

 Item
 2.

 Properties

 Item
 3.

 Legal Proceedings

 Item
 4.

 Mine Safety Disclosures

 Item
 5.

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item
 6.

 Selected Financial Data

 Item
 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item
 7A.

 Quantitative and Qualitative Disclosures About Market Risk

 Item
 8.

 Financial Statements and Supplementary Data

 Item
 9.

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item
 9A.

 Controls and Procedures

 Item
 9B.

 Other Information

 Item
 9C

 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 Item
 10.

 Directors, Executive Officers and Corporate Governance

 Item
 11.

 Executive Compensation

 Item
 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item
 13.

 Certain Relationships and Related Transactions, and Director Independence

 Item
 14.

 Principal Accounting Fees and Services

 Item
 15.

 Exhibits and Financial Statement Schedules

 Item
 16.

 Form 10-K Summary

 PART
I

 Item
1. General

 Company
Background

 Nanophase
Technologies Corporation ("Nanophase," "Company," "we," "our," or "us"),
along with its wholly owned subsidiary, Sol sence, LLC (our "Sol sence 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. 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. Our common stock trades on the OTCQB marketplace under the symbol NANX. We have development
and application laboratories, and manufacturing capacity in three locations in the Chicago, Illinois area.

 Leveraging
a platform of integrated patented and proprietary technologies, we create products with unique performance to enhance end-consumers'
health and well-being. We offer soup-to-nuts 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 Active Pharmaceutical Ingredients ("APIs") and as fully developed prestige skin care products,
marketed and sold through our Sol sence beauty science subsidiary. We believe that we have developed technological
advantages with respect to our APIs sold for use as ingredients, while our Sol sence beauty science technologies lead to
enhanced efficacy and aesthetics in our finished products, which have received broad acceptance in the marketplace. Due to the
enhanced efficacy and aesthetic qualities offered by our proprietary technology platform, Sol sence finished products satisfy
growing consumer demands around "clean" and inclusive beauty. Sol sence beauty science also benefits from the
Company's vertical integration with each product's key active ingredient that delivers its point-of-difference. 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. 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.

 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 Sol sence 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.
We continue to see unprecedented demand in both beauty science, for our APIs and finished products, and life science areas.
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.

 Nanophase,
primarily through Sol sence, now partners with brands to develop, manufacture, and market products and ingredients that
enhance lives through healthy skin. We are focusing our combined business-, ingredient-, and product-development capabilities
on products with unique performance in this area. While we will continue to produce and sell materials to our other advanced materials
customers, it is not our strategic focus. We may develop additional technologies, or find unique applications outside of our core
markets in the future, but to maximize the use of our resources today, we plan on expanding efforts in areas where we have proven
we can deliver innovation and growth.

Beauty Science Business

 In
2020, Sol sence beauty science finished products surpassed our personal care ingredients business in terms of total revenue,
and since 2021, Sol sence beauty science more than doubled our revenue from personal care ingredients. We believe that
Sol sence offers the greatest growth potential of any group of products in any market in the Company's history. Our
volumes are continuing to grow, limited mainly by our capacity. We expect our Sol sence volume, based on 2024 shipments
and customer orders in-hand, to exceed full year 2023 volume.

 The
extent to which we grow will be dependent upon our ability to effectively expand our capabilities during 2024. As a result, we
plan to continue investments in facilities and equipment as well as in human resources, in 2024 and beyond. We are prioritizing
facilities expansion, and capital investment in this business to allow for continued growth, and increased profitability.

 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 Sol sence business, with first
revenue recognized during 2017. 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.
We continue to develop and expand our in-house formulating capability, through which we have created, and now sold, more than
250 SKUs of fully formulated finished cosmetics products in markets focused on skin health, with the majority in prestige beauty.
Products developed and sold by our Sol sence 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. Although our Sol sence
products are fully formulated for consumer use, we do not sell directly to consumers or distribute products to consumers under
the Sol sence brand through intermediaries or resellers. Instead, we sell our Sol sence
 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. In 2022, Sol sence (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 Sol sence-made products as primary sunscreens in Australia. Our initial focus
continues to be on establishing a footprint with both new and existing Sol sence 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 Sol sence products. Shortly thereafter, Sol sence Beauty Science received two industry
accolades. In July at Cosmoprof North America, Sol sence 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 September, Sol sence was awarded the Cosmetics & Toiletries All 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 early 2023, Sol sence 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 July of 2023, Sol sence was
again awarded the Cosmopack Award for best Formulation, this time for its product Natural Glow Face Oil SPF 40+ featuring Kleair
and Bloom technology, recognizing our continued innovative approach to formulation and product development. In 2023, Sol sence
also won the 2023 BeautyMatter NEXT Award for Best Contract Manufacturer and was a winner of the 22nd Chicago Innovation Awards.
Most recently, Sol sence's market-ready product Soft Glow SPF 50+ won the 2024 Cosmetics & Toiletries All
Awards Best in Finished Formula-Prestige Category, spotlighting the ingenuity and creativity of our formulas.

 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. 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 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.

 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. 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.

 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. 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.

 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. 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. Additionally, we could be disrupted by conditions unrelated
to our business operations or that are beyond our control, including but not limited to international trade restrictions and conditions
related to epidemics. We typically maintain no less than one month's supply of raw materials and parts
that are sourced from sole suppliers and make efforts to identify additional suppliers who may be able to provide such raw materials
or parts. The Company is actively taking steps to reduce the number of singularly sourced raw materials.

 Markets
and Distribution

Beauty Science Business

 We
partner with brands on a global basis to develop, manufacture and market products that enhance lives through healthy skin. These
products are fully-formulated solutions built around proprietary Sol sence technologies, which are designed to improve
skin health for all human beings, and are aligned with consumer demand for "clean" and inclusive beauty products that
enhance skin health. Sol sence 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. 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. With our first Sol sence beauty science product revenue recognized during 2017, we had our first material
amounts of Sol sence product revenue in 2018, and saw significant expansion in these sales through 2023. Sol sence
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 Sol sence beauty science business
to enhance both our degree of control of the business development cycle, and to further enable our ability to grow rapidly.

 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. 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. 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. The New Jersey Complaint claims that Nanophase breached
the parties' 1999 Zinc Oxide Supply Agreement. For additional information about the complaint see Item 3. Legal proceedings.

 Advanced
Materials Business

 Our
technologies for engineering and manufacturing life science materials and other nanomaterials, and our understanding of how to
make nano-scale and other advanced materials exhibit desirable performance characteristics in various media, have resulted in
commercial materials solutions that we believe offer superior performance in many applications. Medical diagnostics, which we
view as being a life science application, was the largest market for our advanced materials business from 2020 through 2023, and
we expect this to be true for the foreseeable future. This is a key area of focus in advanced materials in terms of new business
development. Our legacy markets for advanced materials include architectural coatings, surface treatment (polishing), plastics
additives, textiles applications, and others. As advanced materials markets continue to develop and grow, we believe that customers'
preferred delivery formats will often be dispersed and/or coated nanomaterials for life science applications. We believe we are
well-positioned with our platform of integrated commercial nanomaterial technologies to respond to this demand, although outside
of life science areas, we are currently not actively developing new business in this area.

and Development

 Most
of our research and development over the past few years has been directly related to Sol sence beauty science product and
personal care ingredient applications development. 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.
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
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. 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.
Our future success will depend in large part upon our ability to develop products which bring a high degree of value to our customers'
products. 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.

 Competitive
Advantage

 In
our Sol sence 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. These technologies expand access
to healthy skin by improving both the product experience across the full range of skin tones while also leveraging a unique versatility
that enables a variety of novel formats to reach the full range of product preferences and lifestyles. By combining our market
awareness, proprietary dispersion capabilities and formulation know-how, our Sol sence 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 Sol sence products.

 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. 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.

 In
our advanced materials business, we have created an integrated platform of commercial nanomaterial technologies that are patented,
patent-pending or proprietary, and result in products that see end use in a variety of applications, including use in enhancing
the performance of PCR testing for various viruses, including COVID-19. These technologies revolve around our two distinct manufacturing
process (PVS – Plasma Vapor Synthesis and NAS – NanoArc Synthesis) and are designed to deliver nano-,
non-nano and advanced-materials solutions for a targeted market or a specific customer application. Our platform provides flexibility
and capability to engineer nanomaterials that meet a customer's performance requirements and delivers our nanomaterial solutions
in a readily usable format. Our technologies are scalable and robust, having allowed us to produce up to several hundred metric
tons in this segment annually.

 Manufacturing
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. 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). Our third facility, our newest and also in the Chicago area, is now registered
under the ISO 9001, American National Standard, Quality Management System Requirements, and ISO 14001, American National Standard,
Environmental Management System Requirements. 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"). 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 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 Sol sence
products. Our manufacturing approach, targeted engineering actions, and capital investment have resulted in continuing process
innovations and improvements that have reduced the variable manufacturing cost significantly over the past several years, while
increasing our capacity to meet demand.

 We
are committed to a Lean Six Sigma manufacturing approach, to the extent possible given a certain measure of irregular demand,
where we are able to reduce excess labor and manage the lowest practical inventory and supply levels in order to minimize working
capital demands. This approach complements two of our major operational goals - (1) to increase output without adding unnecessarily
to existing equipment and (2) to continually reduce production costs while consistently producing high quality products.

 Intellectual
Property and Proprietary Rights

 We
rely on a combination of patent, trademark, copyright, trade secret and other intellectual property laws, nondisclosure agreements
and other protective measures to protect our intellectual property. In addition to obtaining patent and trademarks based on our
inventions and products, we may also license certain third-party patents from time-to-time to expand our technology base.

 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. 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. 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 Sol sence, finished products that impart the benefits of minerals-based products with superior
tactile, visual, and performance characteristics.

 With
respect to traditional suppliers, we may compete against lower priced traditional materials for certain customer applications.
In some product or process applications the benefits of using advanced materials do not always justify a process change or outweigh
their frequently higher costs.

 We
believe that our material technologies and manufacturing platforms are strong. 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 Sol sence beauty science subsidiary faces competition
from a wide variety of offerings in the field of skin care. Our Sol sence products compete with existing solutions as well
as new solutions from various sources, including other product developers and manufacturers who seek to serve skin care brands
and integrated brands who also manufacture their own products in-house, and we must differentiate our value proposition in order
to gain traction in this marketplace. 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 Sol sence customers have internal development and manufacturing capabilities that are similar to the capabilities
of Sol sence, and can serve as indirect competition to our products and services. We believe that our Sol sence
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.

 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. 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. TGA site clearance
is legally required for brands to market Sol sence-made products as primary sunscreens in Australia. Our initial focus
will be on establishing a footprint with both new and existing Sol sence 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"). We believe we comply with all applicable exposure limit
standards issued by the United States Department of Labor's Occupational Health and Safety Administration ("OSHA").
Because nanotechnology remains an emerging and evolving science, there are no currently required, measurements or personal protective
equipment available that are specific to nanoparticle safety. Accordingly, we rely on general chemical safety and process safety
requirements to identify safe personal protective equipment and appropriate handling protocols. We believe that we have taken
a leadership position on EH&S in our operations and have internal and external review and monitoring of our practices.

 In
addition, our facilities and operations are subject to the plant and laboratory safety requirements of various environmental and
occupational safety and health laws. We believe we are in compliance with all such laws and regulations, and to date, those regulations
have not materially restricted or impeded operations. Further, we believe our processes to be highly efficient, generating very
low levels of waste and emissions. For this reason, we do not view issues surrounding climate change and any currently foreseeable
related regulations as materially impacting our business and financial statements, beyond any inestimable impact on the macro-economic
environment.

 We
have taken a responsible, proactive approach to EH&S by implementing appropriate procedures and processes to have our facilities
registered under ISO 14001, American National Standard, Environmental Management System Requirements. We are also involved with
leading industry groups that are defining nanomaterial standards and protocols. These currently include the ASTM International
Committee on Nanotechnology, and the US TAG to ISO TC 229 Nanotechnology committee managed by the American National Standards
Institute committee (ANSI). We also participate in FDA reviews relative to cosmetic and applicable drug applications. 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. 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. 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. Our sales are primarily pursuant to purchase
orders for delivery of our Sol sence formulated products, personal care ingredients, and advanced materials. We have some
agreements that give customers the right to purchase a specific quantity of ingredients during a specified time period. These
agreements, however, do not obligate the customers to purchase any minimum quantity of such ingredients. The quantities actually
purchased by the customer, as well as the shipment schedules, are frequently revised during the agreement term to reflect changes
in the customer's needs. For these reasons we do not believe that such agreements are meaningful for determining backlog
amounts.

 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.

 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 Sol sence beauty science subsidiary, which has grown to exceed Personal Care Ingredients and Advanced Materials
combined. For 2023, total Sol sence 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 Sol sence customers, constituted approximately 25%, 17%, 15%, and 7%, respectively, of our 2023
total revenue.

 As
our Sol sence 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. 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. The
loss of one of our largest customers or the failure to attract new customers could have a material adverse effect on our business,
results of operations and financial condition. 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 Sol sence
beauty science subsidiary. To the extent we are successful in both adding a large number of customers through this model, and
maintaining or expanding our existing partners, we believe we will be able to best manage the risks associated with customer concentration.

 Forward-Looking
Statements

 We
want to provide investors with more meaningful and useful information. As a result, this Annual Report on Form 10-K (the "Form
10-K") contains certain "forward-looking statements", as defined in Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These statements reflect our current expectations of the future results of our operations, performance and achievements.
Forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
We have tried, wherever possible, to identify these statements by using words such as "anticipates", "believes",
"estimates", "expects", "plans", "intends" and similar expressions. 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 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 Sol sence 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
Sol sence 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.
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.

 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"). Such reports, proxy statements and other
information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, DC 20549 or by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site ( that contains reports,
proxy and information statements and other information regarding issuers that file electronically.

 Financial
and other information may also be accessed at our website. The address is www.nanophase.com. We make available, free of charge,
copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing
such material electronically with, or otherwise furnishing it to, the SEC, and intend to make all such reports and amendments
to reports available free of charge on our website. 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.

 Item
1A. Risk Factors

 Not
required for a smaller reporting company.

 Item
1B. Unresolved Staff Comments

 Not
required for a smaller reporting company.

 Item
1C. Cybersecurity

 Risk Assessment and Strategy

 The Company regularly evaluates cybersecurity risk
from computer viruses and more sophisticated and targeted cyber-related attacks such as ransomware, as well as cybersecurity failures
resulting from human error and technological errors.

 Our overall strategy in combatting known cybersecurity risks includes a variety of
individual tactics, including:

 The use of antivirus software, virtual private networks, email security, as well as other software to prevent and detect data intrusions.

 The deployment of updates and patches as they are available and maintaining the current versions of major software to reduce the exposure
to vulnerabilities.

 If necessary, the use of third-party security experts if and when an incident is detected.

 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.

 Management 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.

 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.

 Our
manufacturing operations in Burr Ridge are registered under ISO 9001, and we believe that our manufacturing operations are within
the cGMP requirements of the FDA for products that require such compliance. This facility is also registered under ISO 14001 which
is the international standard for environmental management. The Burr Ridge site is registered with the FDA for API manufacturing.

 The
Romeoville facility houses our headquarters, advanced engineering, manufacturing (including particle coating, particle dispersion
and pilot-scale manufacturing), and research and development with three applications development and formulating laboratories.
The Romeoville facility has a quality control laboratory designed for the dual purposes of validating operations to cGMP and ISO
standards and production process control. This laboratory is equipped to handle many routine analytical and in-process techniques
that are currently required. All Romeoville manufacturing processes are 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. The Romeoville site is registered with the FDA for
API manufacturing, manufacturing, and packaging.

 The
Bolingbrook facility houses our warehousing operations, sunscreen lotions manufacturing, filling and assembly of our Sol sence
 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. 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. 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. During December 2021, we entered into a Standard
Form Industrial Lease for a new facility in Bolingbrook, Illinois, which, among other things, will end in May of 2032, with options
to extend this lease at market rent for each of three concurrent five-year periods.

 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. 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. Management continues to spend considerable
time determining how best to optimize our facilities to maximize growth over the next few years. 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.

 Item
3. 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. 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"). 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 Sol sence, LLC ("Sol sence"), in markets designated
as being in the field of use (the "Field") under the Agreement. 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. 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. 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. 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. Thereafter,
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 Sol sence 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. 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. 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.
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"). 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.

 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
4. Mine Safety Disclosures

 Not
applicable.

 PART
II

 Item
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Market
Information; Holders; Dividends

 Our
common stock is traded under the symbol "NANX" on the OTCQB marketplace, operated by OTC Markets Group. The 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

 $

 1.79

 $

 1.08

 Second

 1.45

 0.50

 Third

 1.40

 0.88

 Fourth

 1.00

 0.55

 Fiscal
 year ended December 31, 2022:

 First

 $

 4.42

 $

 2.04

 Second

 3.45

 2.51

 Third

 3.25

 2.32

 Fourth

 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.

 We
have never declared or paid any cash dividends on our common stock and do not currently anticipate paying any cash dividends or
other distributions on our common stock in the foreseeable future. We intend instead to retain any future earnings for reinvestment
in our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be
dependent upon our financial condition, results of operations, capital requirements and such other factors deemed relevant by
our Board of Directors. Our Business Loan Agreements with Beachcorp, LLC ("Beachcorp"), Strandler, LLC ("Strandler"),
and Libertyville Bank and Trust Company ("Libertyville"), dated as of November 19, 2018, January 28, 2022, and December
21, 2021 respectively, require us to obtain the written consent of the lender prior to paying any cash dividends on our common
stock.

 Item
6. [Reserved]

 Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 The
following discussion and analysis should be read in conjunction with risks discussed in the financial statements and related notes
thereto appearing elsewhere in this Form 10-K. When used in the following discussions, the words "anticipates," "believes,"
"estimates," "expects," "plans," "intends" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and contingencies that could
cause actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements.
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, Sol sence, LLC (our "Sol sence
beauty science subsidiary"), is focused on various beauty- and life-science markets. Our primary skin health products are
fully developed prestige skin care formulations with mineral-based UV protection, marketed and sold through our Sol sence
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.
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. 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.

 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. 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. 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.

 Other
critical estimates include the allowance for doubtful accounts applied against our receivables balance as well as an inventory
reserve. 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. 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. Particularly
with respect to customers of our Sol sence 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. 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. 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 Sol sence
beauty science subsidiary grows, we will monitor this closely and adjust estimates as necessary.

 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. 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.
Some of the materials in question are nearing expiration and therefore more difficult to sell, some represent soon-to-be obsolete
products, and some are raw materials that we no longer use regularly.

 Certain
assumptions are necessary to assess the impact of risks and uncertainties on the financial information, such as cash flow projections,
availability of capital if needed to support the ongoing operations of the business, and our expected compliance with contractual
commitments. Any changes in those plans or assumptions could have a material impact on our liquidity and financial condition.
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.

 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 Sol sence beauty science subsidiary. 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).

 Current
Significant Customers

 2023

 2022

 Largest Personal Care Customer

 %

 %

 Sol sence Customer - 1

 %

 %

 Sol sence Customer - 2

 %

 %

 Significant Customer Total

 %

 %

 Cost
of revenue generally includes costs associated with commercial production and customer development arrangements. 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. 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. We expect to continue new materials development and dispersion technologies for
personal care applications and for our formulated Sol sence products during 2024 and beyond, as part of our business model.
At current revenue levels we have generated a positive gross margin, though margins can be impeded by the cyclicality of our demand,
often leading to the Company not having enough revenue to efficiently absorb manufacturing overhead that is required to work with
current customers and expected future customers. We believe that our current fixed manufacturing cost structure is sufficient
to support higher levels of revenue volume. The extent to which margins grow, as a percentage of total revenue, will be dependent
upon revenue mix, revenue volume, our ability to cut costs and pass commodity market-driven raw materials increases on to customers,
and the speed and efficiency with which we are able to scale up production for our Sol sence products. We expect that,
as product revenue volume increases, our fixed manufacturing costs will be more efficiently absorbed, which should lead to increased
margins as we grow. 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.

and development expense, which includes all expenses relating to the technology and advanced engineering groups, primarily consists
of costs associated with the development or acquisition of new finished product formulations for skin care, new product applications
for our skin care ingredients, advancement of our medical diagnostics ingredient knowledge, and the cost of enhancing our manufacturing
processes. This includes legal fees related to intellectual property development, protection, and maintenance. As an example,
we are currently focusing the bulk of our resources on developing new product formulations, and related new technologies, as we
expand marketing and sales efforts relating to our Sol sence products. This work has led to several new products and additional
potential new products. 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.

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
Sol sence line of personal care products and related capabilities. We expect expenses for research and development to continue
to increase depending on growth in our Sol sence 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.

 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. 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. 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.

 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. 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. If we are unable to pass through
any increases due to contractual limitations or conditions in our markets specifically, this could reduce margins and net income.

 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. 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. 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.

 On
November 16, 2018, we entered into a Business Loan Agreement (the "Master Agreement") with Beachcorp, LLC. 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. 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. 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. 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. 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. 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.

 On
January 28, 2022, to support the working capital demands created by the commercial growth of the Company and its wholly owned
subsidiary, Sol sence, LLC, the Company entered into (i) an Amended and Restated Business Loan Agreement (the "A&R
Loan Agreement"), which amends and restates the Master Agreement, (ii) a Business Loan Agreement (the "New Term Loan
Agreement") with Strandler, LLC, (iii) a Business Loan Agreement (the "New Revolving Loan Agreement" and together
with the A&R Loan Agreement and the New Term Loan Agreement, the "Loan Agreements") with Beachcorp, LLC, and (iv)
three promissory notes in order to evidence the loans pursuant to the Loan Agreements (the "Notes"). 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.

 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"). The
maximum borrowing amount under the A/R Revolver Facility increases from $6,000,000 to $8,000,000, with a borrowing base consisting
of qualified accounts receivable of the Company. The maximum borrowing amount under the Inventory Facility is $4,000,000, with
a borrowing base consisting of up to 50% of the value of qualified inventory of the Company. The Loan Agreements also extended
the date for which all principal and accrued interest under the A&R Revolver Facility and the Term Loan are due from March
31, 2023 and March 31, 2022, respectively, to March 31, 2024, which was also the maturity date for the Inventory Facility. The
Loan Agreements reduce interest on outstanding borrowings under the A/R Revolver Facility and the Term Loan from the prime rate
plus 2% and 5.25% per year, to a floating rate equal to the prime rate plus 0.75%, which is also the interest rate for borrowings
under the Inventory Facility. The amount of the Term Loan remains $1,000,000. 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 maximum borrowing amount under the Bridge Note is $2,000,000. 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
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, 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").

to the Purchase Agreement, the Company issued to Strandler 15,000 shares of the Company's Series X Preferred Stock (the
"Series X Preferred Stock") at a purchase price per share of $400, for total consideration of $6,000,000, in a transaction
exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. 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").

 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. 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.

 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. 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 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. 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. Upon any conversion of Preferred Stock into Common Stock by Strandler, Strandler is required to
hold the Common Stock received in the conversion for a period of 12 months.

 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.

 In
connection with the Company's entry into the Purchase Agreement, the Company also entered into (i) a Second Amendment to
Business Loan Agreement (the "Term Loan Agreement Amendment") with Strandler, LLC, (ii) a Second Amendment to Business
Loan Agreement (the "A&R Loan Agreement Amendment") with Beachcorp, LLC, which is also an affiliate of our controlling
shareholder, Bradford T. Whitmore ("Beachcorp"), and (iii) a Second Amendment to Business Loan Agreement with Beachcorp
(the "Revolving Loan Agreement Amendment" and together with the Term Loan Agreement Amendment and the A&R Term
Loan Agreement Amendment, the "Loan Agreement Amendments"). The Loan Agreement Amendments extend the maturity date
under each respective loan agreement from March 31, 2025 to October 1, 2025.

 For
more information regarding the New Business Loan Agreement, see Note 3 to our Financial Statements referred to in Part II, Item
8 of this Annual Report on Form 10-K.

 Our
actual future capital requirements in 2024 and beyond will depend on many factors, including customer acceptance of our current
and potential finished Sol sence 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. Other important issues that will
drive future capital requirements will be the development of new markets and new customers as well as the potential for significant
unplanned growth with existing customers. 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. If those projects are delayed or ultimately prove unsuccessful,
or if we fail to be able to support the additional cost of funding them in the near term, we expect our capital expenditures may
fall below the lower end of the range. 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. 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. We are growing rapidly and continue to expect significant growth going forward. We will also consolidate some of
our facilities to mitigate costs. 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.
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 Sol sence products have roughly tripled between 2019
and 2021, increased by 27% in 2022, and increased by 9% in 2023 to reach $25 million annually. 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. 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. 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.

 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. 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. 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. Due to
the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2029 and
2042.

 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. Quantitative and Qualitative Disclosures About Market Risk

 Not
required for a smaller reporting company.

 Item
8. Financial Statements and Supplementary Data

 The
financial statements, with the report of independent auditors, listed in Item 15 appear on pages F-1 through F-21 of this Form
10-K.

 Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 None.

 Item
9A. Controls and Procedures

 Evaluation
of Disclosure Controls and Procedures. We are responsible for establishing and maintaining disclosure controls and procedures
that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act
is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and
(b) accumulated and communicated to our management, including our principal executive and principal financial officer, to allow
timely decisions regarding required disclosures. It should be noted that in designing and evaluating our disclosure controls and
procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and that our management necessarily was required to apply its judgment
regarding the design of our disclosure controls and procedures. As of the end of the period covered by this report, we conducted
an evaluation, under the supervision (and with the participation) of our management, including our Chief Executive Officer (our
principal executive officer) and our Chief Financial Officer (our principal financial officer), of the effectiveness of the design
and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer (which roles are currently filled by the same person),
concluded that our disclosure controls and procedures were effective at reaching that level of reasonable assurance.

 Management's
Annual Report on Internal Control Over Financial Reporting. Management is responsible for the preparation, integrity and fair
presentation of the financial statements and Notes to the financial statements. Management is also responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. The Company's internal control over financial reporting is designed under the supervision of the Company's
principal executive officer and principal financial officer in order to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:

 (i)

 Pertain
 to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
 of assets of the Company;

 (ii)

 Provide
 reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
 with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
 with authorizations of management and directors of the Company; and

 (iii)

 Provide
 reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's
 assets that could have a material effect on the financial statements.

 Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 Management
assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2023. In making
this assessment, management used the criteria established in Internal Control–Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

 Based
on our assessment and those criteria, our management, including our Chief Executive Officer (our principal executive officer)
and our Chief Financial Officer (our principal financial officer) (which roles are currently filled by the same person), believes
that the Company maintained effective internal control over financial reporting as of December 31, 2023.

 Changes
in Internal Control over Financial Reporting. The Company's management, including the Chief Executive Officer (our principal
executive officer) and Chief Financial Officer (our principal financial officer), confirm that there was no change in the Company's
internal control over financial reporting during the quarter ended December 31, 2023 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial reporting.

 This
annual report does not include an attestation report of the Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by the Company's registered public
accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management's
report in this Form 10-K.

 Item
9B. Other Information

 None.

 Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 Not
applicable.

 PART
III

 Item
10. Directors, Executive Officers and Corporate Governance

 DIRECTORS

 Set
forth below is certain information regarding the directors of the Company.

 Name

 Age

 Position
 with Company

 Since

 Term
 Expires

 Class

 R.
 Janet Whitmore

 Chair
 of the Board of Directors

 2003

 2025

 I

 Laura
 M. Beres

 2020

 2025

 I

 Mark
E. Miller

 2023

 2024

 III

 Jess
 A. Jankowski

 President,
 Chief Executive Officer, Chief Financial Officer, and Director

 2009

 2024

 III

 Ms.
Whitmore joined the board in November 2003. She is a former director of Silverleaf Resorts, Inc., where she served as Chair
of the Compensation Committee and as a member of the Audit Committee. She is also a former director of Epoch Biosciences, a supplier
of proprietary products used to accelerate genomic analysis. Ms. Whitmore is Founder of Benton Consulting, LLC, which specializes
in business development and processes. From 1976 through 1999, Ms. Whitmore held numerous engineering and finance positions at
Mobil Corporation, including Mobil's Chief Financial Analyst and Controller of Mobil's Global Petrochemicals Division.
Ms. Whitmore holds a B.S. degree in Chemical Engineering from Purdue University and an M.B.A. from Lewis University. We believe
that Ms. Whitmore's combination of global financial, engineering, and management expertise makes her a valuable member of
our Board of Directors. Ms. Whitmore is the sister of Bradford T. Whitmore, and herself beneficially owned approximately 3% of
the outstanding shares of our common stock as of October 20, 2023. Mr. Whitmore, together with his affiliate Grace Investments,
LP., beneficially owned approximately 63% of the outstanding shares of our common stock as of October 20, 2023. He is also the
manager of Beachcorp, LLC and Strandler, LLC. The Company has entered into loan agreements with both Beachcorp, LLC, and
Strandler, LLC.

 Ms.
Beres has served as a director of the Company since October, 2020. She has spent her career in corporate strategy
and operations in retail and consumer industries, transforming programs and building new organizational and market-facing capabilities.
Ms. Beres currently serves as the VP Merchandising, Strategy & Growth at Ulta Beauty, having previously served as the VP,
Enterprise Transformation. Previously, she has worked at Deloitte Consulting, advising primarily on growth and transformation
strategies in Consumer-Packaged Goods, with additional leadership roles in the CMO practice, developing and executing strategies
on large global accounts. Ms. Beres started her career working in the financial services, focused on small and middle market companies,
with responsibilities including commercial lending and credit evaluation, and credit transaction negotiation. She earned
her M.B.A. from The University of Chicago Booth School of Business and has a B.S. in Finance and B.A. in Oboe Performance from
Butler University. Ms. Beres has also served on Associate and Auxiliary Boards for non-profit organizations in Chicago,
as well as the Board of Directors for Chicago Youth Symphony Orchestras. We believe that Ms. Beres' broad strategic
experience in CPG, and specific experience with cosmetics, along with her strong financial background makes her a valuable member
of our Board of Directors.

 Mr.
Miller has served as a director of the Company since July, 2023. He has spent most of his career in leadership and operations
roles in chemical manufacturing companies in the personal care and pharmaceutical industries. Mr. Miller most recently was the
President and Chief Operating Officer at Nagase Specialty Materials, where he led the Nagase Specialty Materials NA organization.
Previously, he has worked at Business Performance Consultancy as a Principal and in Executive roles at Lonza and BASF. He earned
his JD from the University of Illinois Chicago, M.B.A. from the University of Illinois Urbana-Champaign, and has a BBA in Business
Administration from the University of Notre Dame. We believe that Mr. Miller's broad strategic experience in personal care
chemical manufacturing along with his strong executive leadership background makes him a valuable member of our Board of Directors.

 Mr.
Jankowski joined the Board in February 2009. He has served as the Company's President and Chief Executive Officer since
that time. Mr. Jankowski also served as the Company's principal financial officer and principal accounting officer from
November 2017 until March 2018, and again from April 2019 through the current time. After joining the Company in 1995, Mr. Jankowski
held offices including Vice President of Finance, Chief Financial Officer, Secretary, Treasurer and Controller. Prior to joining
the Company, he served as Controller for two building and public works contractors in the Chicago area, during which time he had
significant business development responsibilities. He began his career working for Kemper Financial Services. Mr. Jankowski holds
a B.S. from Northern Illinois University and an M.B.A. from Loyola University. He was appointed to serve on the board of directors
of the Northern Illinois Technology Foundation, an economic development and technology transfer entity that is part of Northern
Illinois University (2009-2018). Mr. Jankowski was also appointed to serve on the Due Diligence Team of the State's Invest
Illinois Venture Fund (2011-2015). He also served on the TechAmerica Midwest Board (2008-2012). Mr. Jankowski was also appointed
to serve on the Romeoville Economic Development Commission (2004-2010). He has also served on the advisory board of NITECH (Formerly
WESTEC), an Illinois Technology Enterprise Center focusing on the commercialization of advanced manufacturing technologies (2003-2008).
Mr. Jankowski has served on the Advisory Board of the Nanobusiness Commercialization Association since 2009. We believe that Mr.
Jankowski's long-term and intimate experience with the Company's operations and business development process, his
financial and management expertise, and his extensive industry relationships, make him a valuable member of our Board of Directors.

 Meetings of the Board and Committees During the year ended December 31, 2023, the Board of Directors ("BOD") held twenty one meetings. All directors attended all meetings of the BOD and related committee meetings in 2023 with the exception of one committee meeting where Ms. Beres was absent.

 Committees
of the Board of Directors -- The Board of Directors has established an Audit and Finance Committee, Compensation Committee
and Nominating and Corporate Governance Committee. Each operates in accordance with its charter (available on our website www.nanophase.com
under the "Investor Relations" section). The current members of the Audit and Finance Committee are Ms. Whitmore (Chair),
Ms. Beres, and Mr. Miller. The members of the Compensation Committee are Ms. Whitmore (Chair), Ms. Beres, and Mr. Miller. The
members of the Nominating and Corporate Governance Committee are Ms. Whitmore (Chair), Ms. Beres, and Mr. Miller.

 The
Audit and Finance Committee generally has responsibility for retaining the Company's independent public auditors, reviewing
the plan and scope of the accountants' annual audit, reviewing the Company's internal control functions and financial
management policies, reviewing and approving all related party transactions, and reporting to the Board of Directors regarding all
of the foregoing. The Audit and Finance Committee held five meetings during 2023. The Board of Directors has determined that
Ms. Whitmore is an "audit committee financial expert" as described in applicable SEC rules. The Board of
Directors has not determined affirmatively that Ms. Whitmore is independent under the Nasdaq Stock Market rules, but such rules are
inapplicable to the Company because the Company is no longer listed on Nasdaq.

 The
Compensation Committee generally has responsibility for establishing executive officer and key employee compensation, reviewing,
and establishing the Company's executive compensation, evaluating our Outside Director compensation, and reporting to the
Board of Directors regarding the foregoing. The Compensation Committee also has responsibility for administering the 2019 Equity
Compensation Plan (the "2019 Equity Plan"), determining the number of options, if any, to be granted to the Company's
employees and consultants pursuant to the 2019 Equity Plan, and reporting to the Board of Directors regarding the foregoing. Regarding
most compensation matters, including executive compensation, our management provides recommendations to the Compensation Committee;
however, the Compensation Committee does not delegate any of its functions to others in setting compensation. The Compensation
Committee does not currently utilize external consultants in executive or director compensation matters. The Compensation Committee
held two meetings during 2023. Each member of the Compensation Committee is a
"non-employee director" as defined in Rule 16b-3 under the Exchange Act and is an "Outside Director" as
defined by the regulations under Section 162(m) of the Internal Revenue Code.

 The
Nominating and Corporate Governance Committee generally has responsibility for evaluating and nominating candidates to serve on the Board
of Directors, and for establishing and reviewing our Corporate Governance Principles. The Nominating and Corporate Governance Committee
held two meetings during 2023.

 The Board of Directors
considers its role in risk oversight to focus primarily on evaluating risk at the entity and strategic levels, with management
primarily responsible for managing day-to-day risk factors and presenting summary materials for those positions to the Board of
Directors. Consistent with this philosophy, the Board of Directors has no formal policy as to whether the roles of Chief Executive
Officer and board Chair should be segregated or combined. The Board of Directors considers the circumstances of the Company and
makes a determination as to the appropriate leadership structure for the Company at that time. As of the time of this filing,
the positions of CEO and Board Chair are held by two individuals – Ms. Whitmore serves as Chair and Mr. Jankowski serves
as CEO. Ms. Whitmore brings extensive experience in corporate leadership from her own working experience and from a number of
boards on which she has served in the past, and Mr. Jankowski is expected to benefit from that experience. The Board of Directors
believes this to be the most appropriate structure for the Company at this time. Under our Corporate Governance Principles, in
the event that the Chair of the Board is not an Outside Director, the Board will elect a lead independent director, who will have
the responsibility to schedule and prepare agendas for meetings of the Outside Directors, communicate with the CEO, disseminate
information to the rest of the Board and raise issues with management on behalf of the Outside Directors when appropriate. The
Board evaluates its leadership structure on an ongoing basis and may change it as circumstances warrant.

 The
Board of Directors does not have a stated policy regarding diversity, although pursuant to our Corporate Governance Principles,
diversity is one factor that the Nominating and Corporate Governance Committee considers when recommending directors for stockholder
approval. The Board seeks experienced individuals for service who bring extensive experience in leadership, operations, finance,
and engineering, particularly in areas directly applicable to the Company or its intended future endeavors.

 EXECUTIVE
OFFICERS

 Set
forth below is certain information regarding the executive officers of the Company as of the date of this Form 10-K who are not
identified above as directors.

 Name

 Age

 Position

 Kevin
 Cureton

 Chief
 Operating Officer

 Mr.
Cureton joined the Company in November 2012 as Vice President of Sales, Marketing and Business Development. Effective January
1, 2018, Mr. Cureton was named Chief Commercial Officer, and became the Company's Chief Operating Officer in December 2019.
His chemical industry experience has spanned more than twenty years, the majority of which has been in the personal care industry,
including twelve years at AMCOL International Corporation, where he served as the founder and Managing Director of its skin care
and dermatology technology business. Prior to AMCOL, he made significant contributions at Air Products, Borden, and other entities.
Mr. Cureton holds a Bachelor of Science in chemical engineering from Carnegie Mellon University and an M.B.A. from the University
of Chicago Booth School of Business.

 The
Board of Directors elects executive officers and such executive officers, subject to the terms of their employment agreements,
serve at the discretion of the Board of Directors. Messrs. Jankowski and Cureton each have employment agreements with the Company.
See Item 11 below. There are no family relationships among any of the directors or officers of the Company.

 DELINQUENT
SECTION 16(a) REPORTS

 Section
16 of the Exchange Act requires the Company's officers (as defined under Section 16), directors and persons who beneficially
own greater than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with
the SEC. Based solely on a review of the forms we have received, we believe that during 2023 all Section 16 filing requirements
applicable to our officers, directors and 10% beneficial owners were complied with by such persons, with the exception of one
late Form 4 filing by Mr. Cureton.

 CODE
OF ETHICS

 We
have adopted a Code of Business Conduct and Ethics ("Code of Ethics") that applies to, among others, our principal
executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions.
The Code of Ethics is posted on our Internet website www.nanophase.com under the "Investor Relations" section. In
the event that we make any amendment to, or grant any waiver from, a provision of the Code of Ethics that requires disclosure
under applicable SEC rules, we intend to disclose such amendment or waiver on our website.

 Item
11. Executive Compensation

 SUMMARY
COMPENSATION TABLE

 The
following table sets forth a summary of the compensation for each of our named executive officers in U.S. dollars for the years
ended December 31, 2023 and 2022.

 Name
 and Principal Position

 Year

 Salary

 ($)

 Bonus

 ($) (1)

 Awards
 ($) (2)

 All

 Other Compensation
 ($) (3)

 Total

 ($)

 Jess
 Jankowski

 2023

 $

 341,409

 $

 —

 $

 5,521

 $

 27,919

 $

 374,849

 Chief
 Executive Officer

 2022

 $

 336,240

 $

 —

 $

 68,898

 $

 27,317

 $

 418,725

 Kevin
 Cureton

 2023

 $

 294,492

 $

 —

 $

 5,521

 $

 22,704

 $

 322,687

 Chief
 Operating Officer

 2022

 $

 290,000

 $

 —

 $

 68,898

 $

 23,414

 $

 368,582

 (1)

 Any
 amounts earned during 2023 and 2022 would typically have been paid in early-to-mid 2024 and 2023, respectively. Bonus compensation
 is driven by Company performance against its goals as ultimately determined by the Compensation Committee of the Board of
 Directors ("Compensation Committee"). A set of Company-level objectives is created at the beginning of the year,
 focusing on total revenue, revenue growth, particular sources of revenue growth, business development achievements, cash flows
 and related targets, as well as a small discretionary component designed to capture items not specifically listed. Each measure
 has varying levels of achievement, which is reflected in the aggregate bonus measurement. The resulting bonus calculation
 is then applied to each individual's bonus potential as a percentage of salary. Performance milestones were not achieved
 in 2023 or 2022 and related bonuses will not be paid.

 (2)

 The
 amounts in this column represent the aggregate grant date fair value of awards granted in 2023 and 2022 in accordance with
 FASB ASC Topic 718. See Note 10 of the notes to our financial statements contained elsewhere in this Form 10-K for a discussion
 of all assumptions made by us in determining the FASB ASC Topic 718 values.

 (3)

 The
 amounts in this column represent 401(k) match (total for executive officers of $14,585 during 2023 and $14,839 during 2022),
 and the value of the Company portion of the health and life insurance including employer HSA contributions. Health insurance
 benefits are the same for all employees. Life insurance is provided to all employees in the amount of the employee's
 annual base salary, capped at a maximum of $150,000.

 Employment
Agreements

 Effective
as of August 12, 2009, we entered into an employment agreement with Jess Jankowski in connection with his services as President
and Chief Executive Officer. No term has been assigned to Mr. Jankowski's employment agreement.

to the terms of his employment agreement, Mr. Jankowski will receive an annual base salary of not less than $275,000. In addition,
Mr. Jankowski will be eligible for discretionary bonuses for services to be performed as an executive officer of the Company based
on performance and achieving milestones approved by our Board of Directors (the "Board").

 Mr.
Jankowski will be eligible for such stock options and other equity compensation as the Board deems appropriate, subject to the
provisions of the 2019 Equity Compensation Plan. Mr. Jankowski will also be entitled to the employee benefits made available by
us generally to all of our other executive officers, subject to the terms and conditions of our employee benefit plan in effect
from time to time.

 In
the event Mr. Jankowski's employment is terminated other than for "cause" (as such term is defined in the employment
agreement), Mr. Jankowski will receive a sum equal to Mr. Jankowski's base salary in effect at the time of termination for
52 full weeks after the effective date of termination, payable in proportionate amounts on our regular pay cycle for professional
employees, provided that Mr. Jankowski signs, without subsequent revocation, a separation agreement and release in a form acceptable
to us. In addition, all stock options granted to Mr. Jankowski prior to termination will become fully vested and exercisable in
accordance with the applicable option grant agreement and the 2019 Equity Compensation. If he is terminated for cause, or if he
resigns as an employee of the Company, Mr. Jankowski will not be entitled to any severance or other benefits accruing after the
term of the employment agreement and such rights will be forfeited immediately upon the end of such term.

 If,
within two years after the occurrence of a change in control, as defined in his employment agreement, Mr. Jankowski's employment
is terminated other than for cause, his responsibilities or annual compensation are materially reduced without his prior consent,
or we cease to be publicly held (each, a "Trigger"), then, subject to Mr. Jankowski signing, without subsequently
revoking, a separation agreement and release in a form acceptable to us, Mr. Jankowski will receive a sum equal to his base salary
for 104 full weeks after the date the Trigger occurs. In addition, all stock options granted to Mr. Jankowski prior to the Trigger
will become fully vested and exercisable in accordance with the applicable option grant agreement and the 2019 Equity Compensation
Plan.

 Effective
as of November 28, 2012, we entered into an employment agreement with Mr. Kevin Cureton providing for an annual base salary of
not less than $190,000. No term has been assigned to Mr. Cureton's employment agreement. If Mr. Cureton is terminated other
than for "cause" (as such term is defined in Mr. Cureton's employment agreement), then, subject to Mr. Cureton
signing, without revoking, a separation agreement and release in a form acceptable to us, Mr. Cureton will receive severance benefits
in an amount equal to Mr. Cureton's base salary for 26 weeks. In addition, all stock options granted to Mr. Cureton prior
to termination will become fully vested and exercisable in connection with the applicable option grant agreement and the 2019
Equity Compensation Plan. A signing bonus of $25,000 was paid upon Mr. Cureton's acceptance of employment.

 OUTSTANDING
EQUITY AWARDS AT YEAR-END

 The
following table sets forth information regarding each unexercised option held by each of our named executive officers as of December
31, 2023.

 Awards

 Stock
 Awards

 Name

 Number
 of Securities Underlying Unexercised Options (#) Exercisable

 Number
 of Securities Underlying Unexercised Options (#) Unexercisable

 Exercise Price ($)

 Expiration Date

 Number
 of Shares of
 Stock
 That Have
 Not
 Vested
 (#)

 Market
 Value of Shares of Stock That Have Not Vested ($)

 Jess
 Jankowski

 67,450

 -0-

 $

 0.52

 02/13/24

 81,000

 -0-

 $

 0.44

 02/18/25

 69,000

 -0-

 $

 0.42

 02/23/26

 81,000

 -0-

 $

 0.68

 02/21/27

 90,000

 -0-

 $

 0.82

 05/23/28

 16,500

 -0-

 $

 0.51

 05/22/29

 90,000

 -0-

 $

 0.45

 06/18/27

 60,000

 30,000

 (1)

 $

 4.17

 12/28/28

 24,000

 48,000

 (2)

 $

 1.17

 12/20/29

 -0-

 12,600

 (3)

 $

 0.61

 12/27/30

 —

 —

 Kevin
 Cureton

 25,000

 -0-

 $

 0.52

 02/13/24

 50,000

 -0-

 $

 0.44

 02/18/25

 43,500

 -0-

 $

 0.42

 02/23/26

 50,000

 -0-

 $

 0.68

 02/21/27

 80,000

 -0-

 $

 0.82

 05/23/28

 16,500

 -0-

 $

 0.51

 05/22/29

 90,000

 -0-

 $

 0.45

 06/18/27

 60,000

 30,000

 (1)

 $

 4.17

 12/28/28

 24,000

 48,000

 (2)

 $

 1.17

 12/20/29

 -0-

 12,600

 (3)

 $

 0.61

 12/27/30

 —

 —

 (1)

 These
 grants expiring December 28, 2028 vest in three equal installments on December 28, 2022, 2023, and 2024.

 (2)

 These
 grants expiring December 20, 2029 vest in three equal installments on December 20, 2023, 2024, and 2025.

 (3)

 These
 grants expiring December 27, 2030 vest in three equal installments on December 27, 2024, 2025, and 2026.

 POTENTIAL
PAYMENT UPON TERMINATION OR CHANGE IN CONTROL

 Severance
Benefits. Please see discussion of severance benefits under "Employment Agreements" above.

 Change
in Control. Upon a change in control, the 2019 Equity Compensation Plan provides that: (1) vesting under all outstanding
stock options will automatically accelerate and each option will become fully exercisable; (2) the restrictions and conditions
on all outstanding restricted shares shall immediately lapse; and (3) the holders of performance shares will receive a payment
in settlement of the performance shares, in an amount determined by the Compensation Committee, based on the target payment for
the performance period and the portion of the performance period that precedes the change in control. If the Company is not the
surviving entity, the successor is required to assume all unexercised options.

 Payments.
 The following table quantifies the estimated payments that would be made in each covered circumstance to the following
named executive officers:

 Name

 Termination
 By Company Without
 Cause (1)(4)

 Change
 In
 Control (2)(4)

 Involuntary

 Termination In Connection With
 or
 Following a
 Change In
 Control (3)(4)

 Jess
 Jankowski

 $

 341,000

 $

 -0-

 $

 682,000

 Kevin
 Cureton

 $

 147,000

 $

 -0-

 $

 147,000

 (1)

 This
 amount represents the severance benefits that would be received under the executive officer's employment agreement as
 described had the executive officer been terminated by the Company without cause on December 31, 2023, including the value
 of any stock options that would have accelerated vesting in connection with such termination.

 (2)

 This
 amount represents an estimate of the value that would have been received under the 2019 Equity Compensation Plan had a change
 in control occurred as of December 31, 2023, and the executive officers benefited from an acceleration of vesting in the 2019
 Equity Compensation Plan awards, as described above.

 (3)

 This
amount represents an estimate of the payments and value (including acceleration of vesting of equity-based awards) that would
have been received by the executive officers had the executive officers been terminated by the Company without cause on December
31, 2023 in connection with a change in control on this date.

 (4)

 In
 all three columns, for purposes of calculating the value of the acceleration of vesting of equity-based awards relating to
 a change in control on December 31, 2023, the closing price of our common stock as of December 31, 2023, was used. The amount
 represents the difference between the exercise price of any unvested options and $0.60.

 DIRECTOR
COMPENSATION

 Upon
first being elected to the Board of Directors, each director of the Company who is not an employee or consultant of the Company
(an "Outside Director") is granted stock options to purchase shares of common stock at the closing price as of the
date of issuance (the fair market value). This initial option grant to an Outside Director typically vests over three years, though
may accelerate upon termination from the Board of Directors.

 In
2023, we paid quarterly compensation to the Chairman of the Board of Directors, for an annual total of $24,000. Our other two
then Outside Directors, Ms. Beres and Dr. Siegel (who retired during 2023) were each paid quarterly compensation for an annual
total of $18,000. Outside Director Mr. Miller was paid compensation totaling $8,120 during 2023. This compensation was made solely
for services performed by each in their capacities as directors.

 During
the fourth quarter of 2023, we granted our Outside Directors stock options totaling 37,800 shares under the 2019 Equity Plan,
as follows: the Chairman of the Board of Directors received stock options to purchase 12,600 shares of our common stock, while
the other two of the then Outside Directors received stock options to purchase 12,600 shares of our common stock. Our current
Outside Directors had the following shares of our common stock underlying stock options (both vested and unvested) outstanding
as of December 31, 2022: Ms. Whitmore: 93,267 shares; Ms. Beres: 52,600 shares; and Mr. Miller: 22,600 shares.

 In
2005, we adopted, and our stockholders approved, the 2005 Non-Employee Director Restricted Stock Plan (the "Director Restricted
Stock Plan") which reserved 150,000 shares of our common stock to be issued to Outside Directors in the form of restricted
shares. In 2005, no awards were made under the Director Restricted Stock Plan. In 2005, we also adopted the Non-Employee Director
Deferred Compensation Plan (the "Director Deferred Compensation Plan") which permits an Outside Director to defer
the receipt of director fees until separation from service or the Company undergoes a change in control. We amended the Director
Restricted Stock Plan in 2005 to permit an Outside Director to defer receipt of restricted stock granted under it. The deferred
restricted shares are accounted for under the Director Deferred Compensation Plan and issued upon separation from service or the
Company's change in control. Under the Director Deferred Compensation Plan, the deferred fees that would have been paid
in cash are deemed invested in 5-year U.S. Treasury Bonds during the deferral period. The accumulated hypothetical earnings are
paid following the Outside Director's separation from service or the Company's change in control. The deferred fees
that would have been paid as restricted shares are deemed invested in our common stock during the deferral period. The Director
Deferred Compensation Plan is an unfunded, nonqualified deferred compensation arrangement. In 2009, all Outside Directors elected
to defer receipts of all of the restricted shares they became entitled to under the Director Restricted Stock Plan, which was
consolidated into the 2010 Equity Plan. In November 2019, the 2010 Equity Plan was consolidated in to the 2019 Equity Compensation
Plan.

 All
Outside Directors are reimbursed for their reasonable out-of-pocket expenses incurred in attending board and committee meetings.

 2023
 Outside Director Compensation

 Name

 Fees
 Earned
 or Paid in
 Cash
 ($)

 Awards ($) (1)

 Total
 ($)

 R.
 Janet Whitmore

 $

 24,000

 $

 5,521

 $

 29,521

 Laura
 M. Beres

 $

 18,000

 $

 5,521

 $

 23,521

 Dr.
 Richard Siegel

 $

 18,000

 $

 -0-

 $

 18,000

 Mark
 E. Miller

 $

 8,120

 $

 15,719

 $

 23,839

 (1)

 The
 amounts in this column represent the aggregate grant date fair value of awards granted in 2023 in accordance with FASB ASC
 Topic 718. See Note 10 of the notes to our financial statements contained elsewhere in this Form 10-K for a discussion of
 all assumptions made by us in determining the FASB ASC Topic 718 values.

 Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN

 The
following table gives information about our common stock that may be issued upon the exercise of options and rights under our
2019 Equity Compensation Plan (the "2019 Equity Plan") and our 2010 Equity Compensation Plan (the "2010 Equity
Plan") on December 31, 2023. The 2019 Equity Plan replaced the 2010 Equity Plan.

 (a)

 (b)

 (c)

 Plan Category

 Number of securities to be issued upon exercise of outstanding options, warrants and rights

 Weighted - average exercise price of outstanding options, warrants and rights

 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 Plans Approved by Shareholders

 3,526,000

 $
 1.22

 451,000

 Plans Not Approved by Shareholders

 None

 $
 —

 None

 SECURITY
OWNERSHIP OF MANAGEMENT

 AND
PRINCIPAL STOCKHOLDERS

 The
following table sets forth, as of March 28, 2024 certain information with respect to the beneficial ownership of our common stock by (1) each person known by us to own beneficially more than 5% of the outstanding shares of common stock, (2) each of our directors, (3) each of our named executive officers and (4) all of our named executive
officers and directors as a group. There were 54,801,834 shares of common stock outstanding as of March 28, 2024.

 Name

 Number of
 Beneficially Owned (1)

 Percent of
 Shares Beneficially Owned

 Bradford T. Whitmore

 34,884,596
 (2)

 63.75
 %

 R. Janet Whitmore

 1,705,978
 (3)

 3.43
 %

 Jess A. Jankowski

 638,950
 (4)

 1.27
 %

 Kevin Cureton

 539,821
 (5)

 1.08
 %

 Beres, Laura M

 25,000
 (6)

 *

 Miller, Mark E

 -0-
 (7)

 *

 All current executive officers and directors as a group (5 persons)

 2,909,749
 (8)

 5.74
 %

 *Denotes
beneficial ownership of less than one percent.

 Unless
otherwise indicated below, the person's address is the same as the address for the Company.

 (1)

 Beneficial
 ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated below, the persons in the above
 table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

 (2)

 601,410 shares of common stock held by Grace Investments, Ltd., and 30,458,322 shares held by Bradford T. Whitmore, as well
 as 51,454 shares held by his daughter. Mr. Whitmore is a general partner of Grace Investments, Ltd. In
 such capacities, Mr. Whitmore shares voting and investment power with respect to the shares of common stock held by the Grace
 Investments, Ltd.. This information is based on information reported on a Form 4 filed on December 15, 2022 with
 the SEC. The address of the stockholder is 5215 Old Orchard Road, Illinois 60077.

 (3)

 Ms. Whitmore's 60,666 shares of common stock issuable upon exercise of options exercisable currently or within 60 days
 of March 26, 2024.

 (4)

 Mr. Jankowski's 578,950 shares of common stock issuable upon exercise of options exercisable currently or within 60
 days of March 26, 2024, as well as 1,000 shares held by his spouse.

 (5)

 Mr. Cureton's 439,000 shares of common stock issuable upon exercise of options exercisable currently or within 60 days
 of March 26, 2024.

 (6)

 Ms. Beres' 25,000 shares of common stock issuable upon exercise of options exercisable currently or within 60 days
 of March 26, 2024.

 (7)

 Mr. Miller's 0 shares of common stock issuable upon exercise of options exercisable currently or within 60 days
 of March 26, 2024.

 (8)

 all current executive officers and directors as a group's 1,103,616 shares of common stock issuable upon exercise of
 options exercisable currently or within 60 days of March 26, 2024.

 Item
13. Certain Relationships and Related Transactions, and Director Independence

 We
have engaged in a series of debt and equity transactions with Bradford T. Whitmore since January 1, 2020. One of these was for
debt with a conversion provision that resulted in the issuance of common shares in May, 2021. Together with his affiliates Grace
Brothers, Ltd., Grace Investments, Ltd., Mr. Whitmore beneficially owned approximately 64% of the outstanding shares of our common
stock as of March 26, 2024. Mr. Whitmore is the brother of R. Janet Whitmore, who has been the Chair of the Board of Directors
since November 19, 2019 and one of our directors since 2003, and who is also a stockholder. Through his affiliates Beachcorp,
LLC and Strandler, LLC, Mr. Whitmore is also a substantial lender to the Company under the Business Loan Agreement, dated November
16, 2018 (see Note 3 to our financial statements included in this Annual Report on Form 10-K).

Independence. The Board of Directors has determined that the following Company directors are "independent" as
that term is defined in the rules and regulations of the SEC and the Nasdaq Stock Market: Ms. Beres and Mr. Miller. Though we
are no longer listed on Nasdaq, our Board of Directors used the Nasdaq listing standards in making its independence determinations.
Under the Nasdaq Stock Market rules, the Company would qualify as a "controlled company" because of the direct and
indirect ownership of Bradford T. Whitmore. As a controlled company, the Company would be exempt from the requirements under those
rules to have a majority of independent directors, to have an independent compensation committee, or to have independent director
oversight of director nominations.

 The
Board of Directors has established an Audit and Finance Committee, Compensation Committee and Nominating and Corporate Governance
Committee (the "Standing Committees"). Ms. Whitmore, Ms. Beres, and Mr. Miller are members of the Standing Committees,
and Ms. Whitmore serves as Chair of each committee.

 Item
14. Principal Accounting Fees and Services

 Audit
Fees. The aggregate amount billed by our principal accountant, RSM US LLP ("RSM"), for audit services performed
for the fiscal years ended December 31, 2023 and 2022 was approximately $263,000 and $237,000 respectively. Audit services include
the auditing of financial statements and quarterly reviews.

 Audit
Related Fees. There were $26,000 and $0 in audit related fees billed by RSM for the years ended December 31, 2023 and 2022,
respectively, which may include costs incurred for reviews of registration statements, assistance with Staff comment letters,
and consultation on various accounting matters in support of our financial statements.

 Tax
Fees. There were no fees billed by our principal accountant for tax related services for the fiscal years ended December 31,
2023 and 2022.

 All
Other Fees. Other than those fees described above, during the fiscal years ended December 31, 2023 and 2022, there were no
other fees billed for services performed by our principal accountant.

 All
of the fees described above were approved by our Audit and Finance Committee.

 Audit
and Finance Committee Pre-Approval Policies and Procedures. Our Audit and Finance Committee pre-approves the audit and non-audit
services performed by RSM, our principal accountants, in order to assure that the provision of such services does not impair RSM's
independence. Unless a type of service to be provided by RSM has received general pre-approval, it will require specific pre-approval
by the Audit and Finance Committee. In addition, any proposed services exceeding pre-approval cost levels or budgeted amounts
will require specific pre-approval by the Audit and Finance Committee.

 The
term of any pre-approval is 12 months from the date of pre-approval, unless the Audit and Finance Committee specifically provides
for a different period. The Audit and Finance Committee will periodically revise the list of pre-approved services, based on subsequent
determinations, and has delegated pre-approval authority to the Chairman of the Audit and Finance Committee. In the event the
Chairman exercises such delegated authority, he shall report such pre-approval decisions to the Audit and Finance Committee at
its next scheduled meeting. The Audit and Finance Committee does not delegate its responsibilities to pre-approve services performed
by the independent auditor to management.

 PART
IV

 Item
15. Exhibits and Financial Statement Schedules

 (a)

 The
 following documents are filed as part of this Form 10-K:

 1.

 The
 following financial statements of the Company, with the report of independent registered public accounting firm, are filed
 as part of this Form 10-K:

 Report
of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

 Notes
to Consolidated Financial Statements

 2.

 A
 list of exhibits required to be filed as part of this Form 10-K is set forth in the Exhibit Index beginning on page E-1 of
 this Form 10-K, and is incorporated herein by reference.

 Item
16. Form 10-K Summary

 NONE.

TO CONSOLIDATED FINANCIAL STATEMENTS

 Page

 Report
 of Independent Registered Public Accounting Firm (PCAOB ID No. 49)

 Consolidated Balance Sheets as of December 31, 2023 and 2022

 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023 and 2022

 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

 Notes to the Consolidated Financial Statements

 F- 1

 Report of Independent Registered Public Accounting
Firm

 To the Stockholders and the Board of Directors of Nanophase Technologies
Corporation

 Opinion on the Financial Statements

 We have audited the accompanying consolidated balance sheets of Nanophase
Technologies Corporation and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively,
the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.

 Basis for Opinion

 These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ( PCAOB)
and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matters

 The critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.

 F- 2

 Contingencies

 The Company has contingent liabilities related to litigation and claims
that arise in the normal course of business. The Company accrues for contingent liabilities when management determines it is probable
that a liability has been incurred and the amount can be reasonably estimated. This determination requires significant judgment by management.

 As described in Notes 12 and 14 to the financial statements, the Company
has exclusive supply agreements with BASF Corporation (BASF), its largest customer, and in 2022, BASF filed a complaint against the Company
alleging that it had breached the supply agreement. Discovery in that litigation is ongoing. Management believes at this time that the
allegations of BASF's complaint are without merit and are unsupported by the terms of the agreement and governing law. Certain counterclaims
and appeals have occurred and legal proceedings are ongoing. A contingent liability was not recorded as of December 31, 2023, and
an estimated range of possible losses is not disclosed in the financial statements, as management has determined an unfavorable outcome
is not probable nor is a range of loss reasonably estimable at this time.

 In assessing whether the Company should accrue a liability in its financial
statements as a result of the lawsuit, as well as evaluating what other risks and uncertainties may exist, the Company considered various
factors, including the legal and factual circumstances of the case, the trial records, the current status of the proceedings, applicable
law and the views of legal counsel. While the Company believes that the ultimate resolution of this matter will not have a material impact
on the Company's financial statements, the outcome of litigation is inherently uncertain and the final resolution of this matter
may result in expense or business consequences to the Company in excess of management's expectations.

 We identified this potential contingent liability and disclosure related
to the BASF litigation as a critical audit matter because evaluating the likelihood of potential outcomes of the BASF lawsuit involves
significant judgment by management. This required a high degree of auditor judgment and an increased extent of effort when performing
audit procedures to evaluate the Company's assertion that a loss from this litigation is not probable and reasonably estimable as
of December 31, 2023.

 Our audit procedures related to the potential contingent liability
and disclosure of the BASF lawsuit included the following, among others:

 We held discussions with management to determine the status of the case and to understand the basis for the Company's conclusion
that the loss from the case is not probable and reasonably estimable as of December 31, 2023.

 We performed tests of details on legal expense accounts, including inspection of third-party invoices for legal services incurred.

 We obtained and evaluated an audit response letter directly from the Company's external counsel involved in the case confirming
the facts and circumstances of the proceedings, and to consider any professional judgments on the outcome of the matter.

 We evaluated the accuracy and completeness of the Company's disclosures in the December 31, 2023 financial statements by comparing
the disclosures to the legal letters from external counsel and analysis of the case.

 We performed subsequent event inquiries of management and external counsel to reasonably coincide with the date of our report.

 /s/ RSM US LLP

 We have served as the Company's auditor since 2001.

 Milwaukee, Wisconsin

 March 28, 2024

 F- 3

 CONSOLIDATED
BALANCE SHEETS

 2023

 2022

 (in thousands except share and
 per share data)

 ASSETS

 Current assets:

 Cash

 $
 1,722

 $
 2,186

 Trade accounts receivable

 3,692

 4,873

 Allowance for Credit Losses

 ( 225
)

 ( 139
)

 Trade accounts receivable, net

 3,467

 4,734

 Inventories, net

 10,031

 8,839

 Prepaid expenses and other current assets

 1,082

 Total current assets

 16,302

 16,625

 Equipment and leasehold improvements, net

 8,668

 7,949

 Operating leases, right of use

 7,907

 8,978

 Other assets, net

 Total assets

 $
 32,881

 $
 33,558

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:

 Line of credit – accounts receivable, related party

 $
 2,810

 $
 4,282

 Current portion of debt, related party

 2,000

 —

 Current portion of operating lease obligations

 1,297

 —

 Accounts payable

 6,260

 6,363

 Current portion of deferred revenue

 2,353

 2,167

 Accrued expenses

 1,023

 Total current liabilities

 15,589

 13,835

 Long-term portion of operating lease obligations

 9,152

 9,823

 Long-term line of credit – inventory, related party

 5,000

 3,000

 Long-term debt, related party

 1,000

 1,000

 Long-term portion of deferred revenue

 —

 Asset retirement obligations

 Total long-term liabilities

 15,390

 14,074

 Contingent liabilities

 —

 —

 Stockholders' equity:

 Preferred stock, $.01 par value, 24,088 shares authorized, and no shares issued and outstanding

 —

 —

 Common stock, $.01 par value, 60,000,000 shares authorized; 49,627,254 and 49,320,680 shares issued and outstanding on December 31, 2023 and December 31, 2022, respectively

 Additional paid-in capital

 106,069

 105,226

 Accumulated deficit

 ( 104,663
)

 ( 100,070
)

 Total stockholders' equity

 1,902

 5,649

 Total liabilities and stockholders' equity

 $
 32,881

 $
 33,558

 (See
accompanying Notes to Consolidated Financial Statements)

 F- 4

 CONSOLIDATED
STATEMENTS OF OPERATIONS

 Years ended December 31,

 2023

 2022

 (in thousands except share and
 per share data)

 Revenue:

 Product revenue

 $
 36,641

 $
 36,731

 Other revenue

 Total revenue

 37,297

 37,317

 Operating expense:

 Cost of revenue

 29,472

 28,957

 Gross profit

 7,825

 8,360

 Research and development expense

 3,837

 3,037

 Selling, general and administrative expense

 7,534

 7,581

 Loss from operations

 ( 3,546
)

 ( 2,258
)

 Interest expense

 ( 838
)

 ( 382
)

 Loss before provision (benefit) for income taxes

 ( 4,384
)

 ( 2,640
)

 Provision (benefit) for income taxes

 ( 17
)

 Net loss

 $
)

 $
)

 Net loss per share-basic

 $
 ( 0.09
)

 $
 ( 0.05
)

 Weighted average number of basic common shares outstanding

 49,556,305

 49,117,000

 Net loss per share-diluted

 $
 ( 0.09
)

 $
 ( 0.05
)

 Weighted average number of diluted common shares outstanding

 49,556,305

 49,117,000

 (See
accompanying Notes to Consolidated Financial Statements)

 F- 5

 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY

 (in
thousands except share data)

 Preferred Stock

 Common Stock

 Additional Paid-in Capital

 Accumulated

 Description

 Amount

 Amount

 Capital

 Deficit

 Total

 Balance on December 31, 2021

 —

 $
 —

 48,893,573

 $

 $
 104,423

 $
 ( 97,447
)

 $
 7,465

 Issuances of shares and stock option exercises

 —

 —

 427,107

 $

 $

 —

 Stock-based compensation

 —

 —

 —

 —

 —

 Net loss for the year ended December 31, 2022

 —

 —

 —

 —

 —

)

)

 Balance on December 31, 2022

 —

 $
 —

 49,320,680

 $

 $
 105,226

 $
 ( 100,070
)

 $
 5,649

 Cumulative effect of accounting changes related to expected credit losses

 —

 —

 —

 —

 —

 ( 203
)

 ( 203
)

 Issuances of shares and stock option exercises

 —

 —

 306,574

 —

 Stock-based compensation

 —

 —

 —

 —

 —

 Rights offering expense

 —

 —

 —

 —

 ( 81
)

 —

 ( 81
)

 Net loss for the year ended December 31, 2023

 —

 —

 —

 —

 —

)

)

 Balance on December 31, 2023

 —

 $
 —

 49,627,254

 $

 $
 106,069

 $
 ( 104,663
)

 $
 1,902

 (See
accompanying Notes to Consolidated Financial Statements)

 F- 6

 CONSOLIDATED
STATEMENTS OF CASH FLOWS

 Years Ended December 31,

 2023

 2022

 (in thousands)

 Operating activities:

 Net loss:

 $
)

 $
)

 Adjustments to reconcile net loss to cash used in operating activities:

 Depreciation and amortization

 Share-based compensation

 Changes in assets and liabilities related to operations:

 Trade accounts receivable

 1,064

 ( 797
)

 ( 1,192
)

 ( 2,744
)

 Prepaid expenses and other assets

 ( 216
)

 Accounts payable

 ( 503
)

 1,826

 Deferred revenue

 Accrued expenses

 ( 146
)

 Net changes in right-of-use assets and lease liabilities – operating

 1,697

 Net cash used in operating activities

 ( 2,006
)

 ( 1,650
)

 Investing activities:

 Acquisition of equipment and leasehold improvements

 ( 1,051
)

 ( 2,823
)

 Net cash used in investing activities

 ( 1,051
)

 ( 2,823
)

 Financing activities:

 Principal payment on finance leases

 —

 ( 111
)

 (Payments) proceeds to line of credit – accounts receivable, related party

 ( 1,472
)

 2,931

 Proceeds from line of credit – inventory, related party

 2,000

 3,000

 Payments to term loans, related party

 ( 1,346
)

 —

 Proceeds from term loans, related party

 3,338

 —

 Proceeds from exercise of stock options

 Net cash provided by financing activities

 2,593

 6,002

 (Decrease) increase in cash

 ( 464
)

 1,529

 Cash at beginning of period

 2,186

 Cash at end of period

 $
 1,722

 $
 2,186

 Supplemental cash flow information:

 Cash paid for interest

 $

 $

 Supplemental non-cash investing and financing activity:

 Accounts payable incurred for the purchase of equipment and leasehold improvements

 $

 $

 Right-of-use asset obtained in exchange for a lease liability

 —

 (See
accompanying Notes to Consolidated Financial Statements)

 F- 7

 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

 (In
thousands, except share and per share data or as otherwise noted herein)

 (1)

 Description
 of Business

 Nanophase
Technologies Corporation ("Nanophase," "Company," "we," "our," or "us")
is a science-driven company which, along with its wholly owned subsidiary, Sol sence, LLC (our "Sol sence
beauty science subsidiary"), is focused in various beauty- and life-science markets. Using consumer health as our
end-goal and science and innovation to guide the path, skin health and medical diagnostics combined currently make up the great
majority of our business and drive our forward growth strategy. We offer engineered materials, formulation development
and commercial manufacturing through an integrated family of technologies. Our expertise in materials engineering allows us to
effectively coat and disperse particles on a nano and "non-nano" scale for use in a variety of skin health markets,
including for use in sunscreens as active ingredients and as fully developed prestige skin care and cosmetics products, marketed
and sold through our Sol sence beauty science subsidiary. In terms of our life sciences focus, we have seen current
conditions significantly increase demand for our medical diagnostics ingredients, as testing for various viruses, most notably
COVID-19, has become a critical use of our technology. 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, fall into the advanced
materials product category.

 We
target markets, primarily related to skin health products and ingredients, as well as diagnostic
life sciences ingredients where we believe our materials and products offer practical and competitive minerals-based solutions.
We traditionally work closely with current customers in these target markets to identify their material and performance requirements.
We market our materials to various end-use applications manufacturers, and our Sol sence products to cosmetics and
skin care brands.

 Recently
developed technologies have made certain new products possible and opened potential new markets. During 2015 we were granted a
patent on a new type of particle surface treatment (coating) — now called Active Stress Defense Technology —
which became the cornerstone of our new product development in personal care, with first revenue recognized during 2016. Active
Stress Defense now refers to a suite of three proprietary technologies — Original Active Stress Defense, Kleair,
and Bloom — all three of which either utilize a unique and proprietary, mineral-based technology or work synergistically
with one of our unique and proprietary, mineral-based technologies to improve performance and/or aesthetics. Our ongoing innovation
efforts include new IP in areas that advance environmental protection, align with market needs, and complement our existing technologies
Through the creation of our Sol sence beauty science subsidiary, we utilize our technology suite to manufacture and sell
fully developed solutions to targeted customers in the skin care industry, typically in prestige skin care and cosmetics markets,
in addition to the ingredients we have traditionally sold in the personal care area.

 Although
our primary strategic focus has been the North American market, we currently sell materials to customers overseas and have been
working to expand our reach within foreign markets. Our common stock trades on the OTCQB marketplace under the symbol NANX.

 While
product sales comprise the majority of our revenue, we also recognize revenue from other sources from time to time. These activities
are not expected to drive the long-term growth of the business. For this reason, we classify such revenue as "other revenue"
in our Consolidated Statements of Operations, as it does not represent revenue directly from the sale of our products.

 The
Company recorded a net loss and negative cash flow from operations in 2023. In addition, the company outstanding debt increased
which left little borrowing capacity available. In early March 2024 the company completed an equity financing providing an additional
$6 million in funds. For additional information see Note 9. Management believes that current
liquidity and available borrowing capacity are sufficient to fund operations and there is not substantial doubt regarding the
Company's ability to continue as a going concern.

 (2)

 S ummary
 of Significant Accounting Policies

 Use
of Estimates and Risks and Uncertainties

 The
preparation of financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates. Certain assumptions are also necessary to
assess the impact of risks and uncertainties on the financial statements, such as cash flow projections, availability of capital
if needed to support the ongoing operations of the business, and our expected compliance with contractual commitments. These risks
and uncertainties are further discussed in Note 12. Any changes in these assumptions or business plans could have a material impact
on the financial statements.

 F- 8

 Cash

 The
Cash balance on December 31, 2023 consists of funds borrowed from our Revolving Line of Credit, which is facilitated by Beachcorp,
LLC. Our ability to access cash from our credit facilities depends on carrying an Accounts Receivable or Inventory balance greater
than the outstanding loan balances in the Revolving Lines of Credit. As part of the agreement, we are required to have a bank
account in place to act as a depository account for our customers. This account is referred to as the Control Account. Furthermore,
there is an Account Control Agreement in place which provides Beachcorp, LLC the ability to exercise control over the account
via approval of requested transfers. According to our agreements with Beachcorp, LLC, Nanophase is to be the party initiating
any transfers, whether to Nanophase or to Beachcorp, LLC, and approval to access any monies within this account can only be withheld
by Beachcorp, LLC if the borrowing base falls below the Company's qualified receivables, or if we are in arrears with respect
to interest payments due Beachcorp, LLC. The failure of Nanophase to remedy the previously mentioned conditions could lead to
Beachcorp, LLC gaining the right, through a "springing" feature administered by Libertyville Bank and Trust, a Wintrust
Community Bank ("Libertyville"), to transfer funds to itself without direct approval from Nanophase. Cash is
held at a federally insured institution, but our cash balances at times exceed insured limits. The Company has not experienced
any losses related to these statutory limits.

 Trade
Accounts Receivable

 Trade
accounts receivable are carried at original invoice amount less an estimate made for credit losses based on a review of
all outstanding amounts on a monthly basis. We determine the allowance for credit losses by identifying troubled accounts
and by using historical experience applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible.
Recoveries of trade accounts receivable previously written off are recorded when received. Our typical credit terms are between
thirty and sixty days from shipment and invoicing.

 On
January 1, 2023, the Company adopted ASU 2016-13 " Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments " which updates the manner in which entities assess expected losses
from financial instruments exposed to credit risk. While this update has a greater impact on issuers with loans, notes, and credit
card receivables, the scope of Topic 326 extends to both financial assets measured at amortized cost as well as available-for-sale
debt securities. As such, trade receivables are subject to the Topic's provisions, requiring entities to consider past events,
current conditions, and reasonable and supportable forecasts in determining the amount of expected loss over the life of the respective
financial instrument. Nanophase uses the loss-rate method in developing its allowance for credit losses, which involves identifying
pools of assets with similar risk characteristics, reviewing historical losses within the last three years, and consideration
of reasonable and supportable forecasts. Changes in estimates, developing trends, and other new information can have a material
impact on future evaluations.

 This
differs from prior allocation methodologies in that in addition to solely considering an aging schedule for amounts to reserve,
management must now also consider current events as well as the future macroeconomic environment when making such loss assessments.
On January 1, 2023, the Company applied the accounting change retrospectively with an opening adjustment to retained earnings
in the amount of $ 203.

 Allowance for Credit Losses

 2023

 2022

 Balance, beginning

 $

 $

 Change in credit loss

 Balance, ending

 $

 $

are stated at the lower of cost, maintained on an average cost basis, or net realizable value. We have recorded allowances to
reduce inventory relating to excess quantities of certain materials. Write-downs of inventories establish a new cost basis, which
is not increased for future increases in market value of inventories or changes in estimated excess quantities.

and Leasehold Improvements

is stated at cost and is being depreciated over its estimated useful life ( 3 - 20 years) using the straight-line method. Leasehold
improvements are stated at cost and are being amortized using the straight-line method over the shorter of the useful life of
the asset or the term of the lease ( 3 - 7 years). Depreciation expense for leased assets is included with depreciation expense for
owned assets. From time to time we have self-constructed assets. These assets are stated at cost plus the capitalization of labor
and are depreciated over an estimated useful life ( 7 - 10 years) using the straight-line method.

 Long
Lived Assets

 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 ASC 360-10-15, Impairment or Disposal
of Long-Lived Assets. 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. 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. Based upon our analysis, there were no impairment charges recognized in
either period presented.

 Deferred

 The
Company records a contract liability for development projects due to the contractual billing of these projects not always aligning
with revenue recognition. In addition, it is now the Company's policy to frequently require deposits relating to the production
of our Sol sence products. Of the total $ 2,353 in deferred revenue reported in 2023, 97 % related to prepayments received
from certain customers per Company policy, and the remaining 3 % related to prepayments from a product development agreement with
a personal care ingredient customer.

 F- 9

 Asset
Retirement Obligations

 In
connection with our leased facilities, we are required to remove certain leasehold improvements upon termination of our occupancy.
We follow the provisions of the FASB issued ASC 410-20, Asset Retirement Obligations, under which we recognize a liability
for the fair value of these asset retirement obligations. The fair value of that liability is measured based on an expected cash
flow approach and accretion expense is recognized each period to recognize increases to the fair value of the liability due to
the passage of time. Increases to the fair value of the liability, except for accretion, are added to the carrying value of the
long-lived asset. Those increases are then reported in amortization expense over the estimated useful life of the long-lived asset.

 Activity in the asset
retirement obligation account for the years ended December 31, is as follows:

 2023

 2022

 Balance, beginning

 $

 $

 Accretion of liability due to passage of time

 Amortization of asset due to passage of time

 —

 —

 Balance, ending

 $

 $

 Financial
Instruments

 We
follow ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets
and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides
the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.

 Our
financial instruments include cash, cash equivalents, accounts receivable, accounts payable and accrued expenses, along with any
short-term and long-term borrowings as described in Note 3. The carrying values of cash and cash equivalents, accounts receivable,
and accounts payable and accrued expenses are reasonable estimates of their fair value due to the short-term nature. The fair
value of short-term and long-term debt approximates carrying value based on comparison of terms to similar debt offering in the
marketplace.

 There
were no financial instruments adjusted to fair value on December 31, 2023 and 2022.

 Product

 Revenues
are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration we
expect to receive in exchange for those goods. When our ingredients and finished products are shipped, with control being transferred
at the shipping point, is the point in time at which we recognize the related revenue.

 We
generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded
within selling, general and administrative expenses. Customers' deposits, deferred revenue and other receipts are deferred and
recognized when the revenue is realized and earned. Cash payments to customers are classified as reductions of revenue in our statements
of operations. For select customers the Company may pay volume rebates which are variable in nature due the amount the select
customer will take. In 2023 no volume rebates were recorded because the customers did not meet required volumes. In 2022 the company
recorded $ 557 in volume rebates as a reduction
in revenue.

 As part of the sales process,
it is common for the Company to receive customer deposits. These deposits are typically held for less than a year and do not result in
a financing component to the sales. The customer deposits are recognized as revenue when the Company ships the finished goods to the customer.

 Contract
balances for the years ended December 31, 2023, 2022, and 2021 are as follows:

 Accounts Receivable

 Contract Assets

 Contract Liabilities

 2021

 $
 3,937

 $

 $
 1,444

 2022

 4,734

 —

 2,188

 2023

 3,467

 —

 2,353

recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $ 2,084
and $ 667 for the years ended December 31, 2023, and 2022, respectively.

 F- 10

 Other

 Other
revenue may include revenue from technology license fees and paid development projects. Technology license fees and paid development
projects are recognized over time when the obligations under the agreed upon contractual arrangements are performed on our part.
Revenue recognized over time was $ 656 and $ 217 for the years ended December 31, 2023 and 2022, respectively.

and Development Expenses

and development expenses are recognized as expense when incurred.

 Income
Taxes

 We
account for income taxes using the asset-and-liability approach. As such, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are
expected to be in effect when the anticipated reversal of these differences is scheduled to occur. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets
will not be realized.

 When
tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50
percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured, as described above, is reflected as a liability for uncertain tax benefits
in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities
upon examination.

 We
have not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is
uncertainty about the timing of such deductibility. We file tax returns in all appropriate jurisdictions, which includes a federal
tax return and Illinois state tax return. When and if applicable, potential interest and penalty costs are accrued as incurred,
with expenses recognized in selling, general and administrative expenses in the statements of operations. As of December 31, 2023,
and 2022, we had no liability for unrecognized tax benefits.

 Earnings
Per Share

 Options
to purchase approximately 889,000 shares of common stock that were outstanding as of December 31, 2023 were not included in the
computation of earnings per share for the year ended December 31, 2023, as they would have been anti-dilutive owing to the loss
reported for the period. Options to purchase approximately 2,051,000 shares of common stock that were outstanding as of
December 31, 2022 were not included in the computation of earnings per share for the year ended December 31, 2022.

 Earnings
applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows:

 Years Ended December 31,

 2023

 2022

 Numerator: (in Thousands)

 Net loss

 $
)

 $
)

 Denominator:

 Weighted average number of basic common shares outstanding

 49,556,305

 49,117,000

 Weighted average additional shares assuming conversion of in-the-money stock options to common shares

 —

 —

 Weighted average number of diluted common shares outstanding

 49,556,305

 49,117,000

 Basic earnings per common share:

 Net loss per share – basic

 $
 ( 0.09
)

 $
 ( 0.05
)

 Diluted earnings per common share:

 Net loss per share – diluted

 $
 ( 0.09
)

 $
 ( 0.05
)

 F- 11

 Recently
Adopted Pronouncements

 In
June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which replaces existing
incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost.

 On
January 1, 2023, the Company adopted ASU 2016-13 " Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments " which updates the manner in which entities assess expected losses
from financial instruments exposed to credit risk. While this update has a greater impact on issuers with loans, notes, and credit
card receivables, the scope of Topic 326 extends to both financial assets measured at amortized cost as well as available-for-sale
debt securities. As such, trade receivables are subject to the Topic's provisions, requiring entities to consider past events,
current conditions, and reasonable and supportable forecasts in determining the amount of expected loss over the life of the respective
financial instrument. Nanophase uses the loss-rate method in developing its allowance for credit losses, which involves identifying
pools of assets with similar risk characteristics, reviewing historical losses within the last three years, and consideration
of reasonable and supportable forecasts. Changes in estimates, developing trends, and other new information can have a material
impact on future evaluations.

 This
differs from prior allocation methodologies in that in addition to solely considering an aging schedule for amounts to reserve,
management must now also consider current events as well as the future macroeconomic environment when making such loss assessments.
On January 1, 2023, the Company applied the accounting change retrospectively with an opening adjustment to retained earnings
in the amount of $203.

 Recently
Issued Pronouncements

 On
December 14, 2023 the FASB issued a final standard on improvements to income tax disclosures. The standard requires disaggregated
information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The
standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital
allocation decisions. ASU 2023-09, Improvements to Income Tax Disclosures, applies to all entities subject to income
taxes. This new requirement will be effective for Nanophase Technologies for annual periods beginning December 31, 2025. The Company
is currently evaluating the impact of the adoption of this standard on the consolidated financial statements.

 (3)

 Related
 Party Notes and Lines of Credit

 Notes
and lines of credit consist of the following:

 2023

 2022

 Rate

 Available

 Balance

 Available

 Balance

 Libertyville Bank & Trust (1)

 9.50
 %

 $

 $
 —

 $

 $
 —

 Libertyville Bank & Trust (2)

 9.50
 %

 —

 —

 Beachcorp, LLC (3) (4)

 9.25
 %

 3,298

 2,810

 4,392

 4,282

 Beachcorp, LLC (3) (5)

 9.25
 %

 5,200

 5,000

 4,000

 3,000

 Strandler, LLC (3) (6)

 9.25
 %

 1,000

 1,000

 1,000

 1,000

 Strandler, LLC (7)

 9.25
 %

 2,000

 2,000

 n/a

 n/a

 1)
 Since
 July 2014, we have maintained a bank-issued letter of credit for up to $ 30 in borrowings,
 with interest at the prime rate plus 1 %, to support our obligations under our Romeoville,
 Illinois facility lease agreement. No borrowings have been incurred under this promissory
 note. It is our intention to renew this note annually. Because there were no amounts
 outstanding on the note at any time during 2023 or 2022, we have recorded no related
 liability on our balance sheet.

 F- 12

 2)
 The
 Company maintains a credit agreement with Libertyville which most recently served the
 primary purpose of insuring that it met its cash balance requirements at quarter end
 relating to a contract with the Company's largest customer. Interest on drawn balances
 was at the prime rate plus 1 %. On December 21, 2021, the existing credit agreement with
 Libertyville was converted for use to support our obligations under our newly leased
 manufacturing and warehouse space in Bolingbrook, Illinois. Interest on drawn balances
 will be at the prime rate plus 1%. This credit agreement has a maturity of December 22,
 2024. We expect to renew this agreement annually, as the lease requires. This credit
 agreement is secured by all the unencumbered assets of the Company and has superior collateral
 rights to those credit facilities with Beachcorp, LLC and Strandler, LLC.

 3)
 On
 November 16, 2018, we entered into a Business Loan Agreement (the "Master Agreement")
 with Beachcorp, LLC. 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 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
 (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. 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. 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 to $ 2,750. 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 to $ 4,000 and extended the maturities of both the Term
 Loan and the A/R Revolver Facility to March 31, 2022. 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 to $ 6,000, 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. This amendment also increased
 the amount of the Term Loan from $ 500 to $ 1,000, 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. The Term Loan and A/R Revolver Facility are secured by all the unencumbered
 assets of the Company and subordinated to Libertyville's secured interest under
 the New Business Loan Credit Agreement. The Master Agreement substantially restricts
 the Company's ability to incur additional indebtedness during the terms of both
 the Term Loan and the A/R Revolver Facility.

 4)
 On
 January 28, 2022 the Company entered into an Amended and Restated Business Loan Agreement
 (the "A&R Loan Agreement"), which amends and restates the Master Agreement
 between the Company and Beachcorp, LLC, and a new promissory note in order to evidence
 the A/R Revolver facility, including an amendment to expand the limit on the A/R Revolver
 Facility from $ 6,000 to $ 8,000, reduce the interest rate to the prime rate plus 0.75 %,
 and extend the maturity of the A/R Revolver Facility to March 31, 2024. On November 13,
 2023 the Company entered into a First Amendment to the A&R Loan Agreement extending
 the maturity of the A/R Revolver Facility to March 31, 2025.

 5)
 On
 January 28, 2022 the Company entered into the A&R Loan Agreement and a new revolving
 loan agreement ("Inventory Facility") with Beachcorp, LLC, and a new promissory
 note in order to evidence the Inventory Facility. The maximum borrowing amount under
 the Inventory Facility is $ 4,000, with a borrowing base consisting of up to 50 % of the
 value of qualified inventory of the Company. The interest rate for the Inventory Revolver
 is at the prime rate plus 0.75 %, and it matures on March 31, 2024. On November 13, 2023
 the company entered into a Replacement Promissory Note with Beachcorp, LLC replacing
 the Inventory Facility promissory note executed on January 28, 2022. The maximum borrowing
 amount under the replacement Inventory Facility was increased to $ 5,200, with a borrowing
 base consisting of up to 55 % of the value of qualified inventory of the Company. The
 interest rate for the replacement Inventory Revolver remains at the prime rate plus 0.75 %,
 and it now matures on March 31, 2025.

 6)
 On
 January 28, 2022 the Company entered into an additional Business Loan Agreement (the
 "New Term Loan Agreement") with Strandler, LLC, which effectively transferred
 or assigned the Term Loan to Strandler, LLC from Beachcorp, LLC. Interest on the New
 Term Loan is at the prime rate plus 0.75 %, and it matures on March 31, 2024. Strandler,
 LLC is also an affiliate of Bradford T. Whitmore. On November 13, 2023 the Company entered
 into the First Amendment To the New Term Loan Agreement with Strandler, LLC, which extended
 the maturity of the New Term Loan Agreement to March 31, 2025.

 7)
 On
 November 13, 2023 the Company entered into a new Promissory Note ("Bridge Note")
 with Strandler, LLC. The maximum borrowing amount under the Bridge Note is $ 2,000. The
 interest rate for the Bridge Note is at the prime rate plus 0.75 %, and it matures on
 May 13, 2024.

 As
part of the March 1, 2024 Securities Purchase Agreement the maturity dates of the Term Loan, A/R Revolver Facility and Inventory
Facility were extended to October 1, 2025 from March 31, 2025. No other changes were made to the debt agreements.

 The Company classifies the line of credit – accounts receivable as current because
we are required to pay back the borrowings as cash is received from our customers. The company's remaining debt is presented within
the Consolidated Balance Sheet as of December 31, 2023, and 2022 in accordance with the maturity dates in the financing agreements.

 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.
The A/R Revolver Facility, the Inventory Facility and the New Term Loan are all secured by all the unencumbered assets of the
Company and subordinated to the Company's credit facility with Libertyville Bank & Trust.

 Related
party interest expense consists of the following:

 Schedule of Related Parties

 Twelve Months Ended December 31,

 2023

 2022

 Interest expense, related parties

 $

 $

interest consists of the following:

 2023

 2022

 Accrued interest expense, related parties

 $

 $

balances associated with related parties are as follows:

 2023

 2022

 Beachcorp, LLC

 $
 7,810

 $
 7,282

 Strandler, LLC

 3,000

 1,000

 (4)

consist of the following:

 2023

 2022

 Raw materials

 $
 8,524

 $
 7,298

 Finished goods

 2,184

 2,041

 Inventory reserve

 ( 677
)

 ( 500
)

 Total Inventories, net

 10,031

 8,839

 (5)

 and Leasehold Improvements

and leasehold improvements consist of the following:

and leasehold improvements consist of the following:

 2023

 2022

 Machinery and equipment

 $
 23,339

 $
 19,899

 Office equipment

 1,014

 1,014

 Office furniture

 Leasehold improvements

 5,157

 5,140

 Construction in progress

 2,952

 30,567

 29,115

 Less: Accumulated depreciation and amortization

 ( 21,899
)

 ( 21,166
)

 $
 8,668

 $
 7,949

 Depreciation
expense was $ 732 and $ 557, for the years ended December 31, 2023 and 2022, respectively.

 F- 13

 (6)

 Lease
 Commitments

 The
Company's operating lease portfolio is comprised of operating leases for office, warehouse space and equipment. Certain
of the Company's leases include one or more options to renew or terminate the lease at the Company's discretion. The
Company regularly evaluates the renewal and termination options and when they are reasonably certain of exercise, includes the
renewal or termination option in our lease term. During the first calendar year of our newly leased building, we have subleased
a portion of the unused floorspace on a temporary basis. This sublease may convert to a month-to-month lease upon expiration.

 As
of December 31, 2023, the right-of-use (ROU) asset had a balance of $ 7,907 which is included in the "Operating lease right-of-use
assets" line item of these consolidated financial statements and current and non-current lease liabilities related to the
ROU asset of $ 1,297 and $ 9,152, respectively. These amounts are included in the "Current portion of operating lease
obligations" and "Long-term portion of operating lease obligations" line items of these consolidated financial
statements. As of December 31, 2022, the ROU asset had a balance of $ 8,978 which is included in the "Operating lease right-of-use
assets" line item of these consolidated financial statements and current and non-current lease liabilities related to the
ROU asset of $ 0 and $ 9,823, respectively. The $ 0 in current lease liability stems from expected payments from the lessor
of the Bolingbrook facility reimbursing the Company for tenant improvement allowances in the amount of $ 1,957 over the subsequent
twelve months. As a result, the total lease liability was reduced by the expected payment, and the net effect of reimbursements
received, and cash paid for leases in 2023 results in net lease payments of $ 97. The discount rates used for leases accounted
for under ASC 842 are based on an interest rate yield curve developed for the leases in the Company's portfolio.

 The
office leases contain variable lease payments which consist primarily of taxes, insurance, and common area or other maintenance
costs, which are paid based on actual costs incurred by the lessor. The Company has elected to utilize the available practical
expedient to combine lease and non-lease components for building leases.

 Quantitative
information regarding the Company's leases is as follows:

 Twelve Months Ended December 31, 2023

 Twelve Months Ended December 31, 2022

 Components of lease cost

 Finance lease cost components:

 Amortization of finance lease assets

 $
 —

 $

 Interest on finance lease liabilities

 —

 Total finance lease costs

 —

 Operating lease cost components:

 Operating lease cost

 1,881

 2,068

 Variable lease cost

 Short-term lease cost

 Sub-lease income

 ( 786
)

 ( 689
)

 Total operating lease costs

 1,788

 2,053

 Total lease cost

 $
 1,788

 $
 2,090

 Supplemental
cash flow information related to leases is as follows for the years ended December 31, 2023 and 2022:

 2023

 2022

 Cash
 paid for amounts included in the measurement of lease liabilities:

 Operating
 cash outflow from operating leases

 $

 $

 1,433

 Lease
 liabilities arising from obtaining right-of-use assets

 $

 $

 Early
 termination of operating lease

 —

 Reduction
 in right of use asset due to remeasurement

 —

 ( 1,793

)

 Reduction
 in lease liability due to remeasurement

 —

 ( 1,898

)

 Weighted-average
 remaining lease term-operating leases (in years)

 7.9

 9.6

 Weighted-average
 discount rate-operating leases

 7.1

 %

 7.6

 %

 F- 14

 The
future maturities of the Company's operating leases as of December 31, 2023 are as follows:

 2024

 $
 1,968

 2025

 1,483

 2026

 1,481

 2027

 1,520

 2028

 1,549

 Thereafter

 5,613

 Total payments

 $
 13,614

 Less amounts representing interest

 ( 3,165
)

 Total minimum payments required

 $
 10,449

 Nanophase Technologies subleases a portion of a
leased industrial building that is used primarily for the storage of furniture, equipment and displays used for retail sales. The arrangement
is not with a related party.

 Payments received by the Company for this sublease
are comprised of two components, which include base rent and Common Area Maintenance (CAM) charges. While the base rent is fixed, the
CAM charges are indexed directly to the Master Lease and are expected to be adjusted periodically as actual costs are incurred. However,
the executed sublease agreement specifically itemizes these costs with a provision that informs the sublessee that the CAM charges will
be adjusted (up or down) based on actual amounts once this information becomes known. As such, the nature of the charges is more closely
representative of a fixed payment (an "in-substance fixed" charge) with the adjustments occurring simply to "true up"
the listed CAM charges once actual charges from the head lessor become known. As sublessor, Nanophase Technologies has elected the practical
expedient to not separate lease and nonlease components in disclosing future undiscounted cashflows and treats the combined components
as a single lease component.

 The sublease arrangement automatically renews following
expiration of the initial term on May 31, 2025, with a one-year notice required to terminate the lease. As of the issuance of these financial
statements the sublessee has not yet provided notice of their intent to renew or terminate said arrangement.

 The future undiscounted lease payments associated
with this arrangement are provided below, and only include the period for which enforceable rights and obligations exist as of the date
of financial statement issuance.

 Months

 For the Year

 Months

 2024

 2025

 January - May

 $
 124,015

 $
 128,640

 June - December

 173,621

 —

 Total

 $
 297,636

 $
 128,640

 (7)

 Expenses

expenses consist of the following:

 As
 of December 31,

 2023

 2022

 payroll and related expenses

 $

 $

 accounts payable

 Tenant
 security deposit / advance rent

 —

 Other

 Total

 $

 $

 1,023

 (8)
 Income
Taxes

 Our
net income tax provision, including both current and deferred, related to U.S. federal and state income taxes, is $ 6. Our current
federal and deferred tax expenses are zero.

 F- 15

 A
reconciliation of income tax benefit to the amount computed by applying the Federal income tax rate to loss before provision for
income taxes as of December 31, 2023 and 2022 is as follows:

 2023

 2022

 Income tax credit at statutory rates

 $
 ( 921
)

 $
 ( 551
)

 Over/Under Accrual of Income Taxes

 ( 3
)

 ( 17
)

 Nondeductible Expenses

 —

 Record Tax Credits

 ( 118
)

 —

 Permanent tax deduction stock options exercised

 ( 63
)

 ( 273
)

 State income tax, net of federal benefits

 ( 165
)

 ( 124
)

 Expiration of NOL & credits

 1,492

 1,149

 Effect of change in deferred tax rate

 Expiration of stock options

 Other

 —

 Change in valuation allowance

 ( 344
)

 ( 347
)

 $

 ( 17
)

 Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of our deferred income taxes consist of
the following:

 2023

 2022

 Deferred tax liabilities:

 Excess tax depreciation

 $
 ( 477
)

 ( 253
)

 ASC 892 Operating Lease Asset

 ( 1,975
)

 —

 Total deferred tax liabilities

 ( 2,452
)

 ( 253
)

 Deferred tax assets:

 Net operating loss carryforwards

 $
 12,020

 $
 13,416

 179 Carryforwards

 163(j) Business interest limitation carryforwards

 Deferred revenue

 —

 Inventory and other allowances

 Excess (tax) book depreciation

 —

 —

 Excess (tax) book amortization

 174 research & experimental expenditures

 Share-based compensation

 Tax Credits

 —

 ASC 892 Operating Lease Liability

 2,610

 —

 Other accrued costs

 Total deferred tax assets

 17,039

 15,181

 Less: Valuation allowance

 ( 14,587
)

 ( 14,928
)

 Deferred income taxes

 $
 —

 $
 —

 The
valuation allowance decreased approximately $ 0.3 million and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively
(net of approximately $ 7.1 million and $ 5.5 million for the years ended December 31, 2023 and 2022, respectively, for expiring
net operating loss carryforwards and credits) due principally to the change in the net operating loss carryforward and uncertainty
as to whether future taxable income will be generated prior to the expiration of the carryforward period. Under the Internal Revenue
Code, certain ownership changes, including the prior issuance of preferred stock and our public offering of common stock, may
subject us to annual limitations on the utilization of our net operating loss carryforward. As of December 31, 2023, it has been
determined that we are not subject to annual limitations on the utilization of our net operating loss carryforward.

 We
have federal net operating loss carryforwards for tax purposes of approximately $ 50 million on December 31, 2023. $ 44 million
expire between 2024 and 2037. We have section 179 carryforwards of approximately $ 0.2 M at December 31, 2023. All 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. Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions
expire between 2029 and 2039.

 F- 16

 (9)

 Capital
Stock

 As
of December 31, 2023, and 2022, we had 24,088 authorized but unissued shares of preferred stock.

to the Securities Purchase Agreement executed on March 1, 2024, the Company issued to Strandler 15,000 shares of the Company's
Series X Preferred Stock (the "Series X Preferred Stock")at a purchase price per share of $ 400, for total consideration
of $ 6,000,000, in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2)
thereof. 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").

 (10)

 Stock
 Options and Stock Grants

 We
have entered into stock option agreements with certain officers, employees and directors. The stock options granted prior to the
adoption of the 2019 Equity Compensation Plan (the "2019 Plan") on November 19, 2019 generally expire ten years from
the date of grant. Future options to be granted under the 2019 Plan will expire seven years from the date of grant.

 Employee
Stock Options

 We
follow ASC Topic 718, Share-Based Payments, in which compensation expense is recognized only for share-based payments expected
to vest.

 Years
ended
 December
31,

 2023

 2022

 Share-based compensation expense

 $

 $

 Remaining unrecognized compensation expense

 $
 1,118

 1,732

 Remaining weighted average-period, expense recognition (years)

 1.8

 2.5

 We
use the Black-Scholes option pricing model to determine the fair value of stock-based compensation. The Black-Scholes model requires
us to make several assumptions, including the estimated length of time employees will retain their vested stock options before
exercising them ("expected term"), the estimated volatility of our common stock price over the expected term, and
estimated forfeitures. Expected price volatility is based on the daily market rate changes of our stock. The active shares granted
prior to fiscal 2020 had a contractual life of 10 years as dictated by the 2010 Plan. The Black-Scholes model also requires a
risk-free interest rate, which is based on the U.S. Treasury yield curve in effect at the time of the grant, and the dividend
yield on our common stock, which is assumed to be zero since we do not pay dividends and have no current plans to do so in the
future. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and consequently,
the related expense recognized on the statement of operations. We recognize stock-based compensation expense on a straight-line
basis over the requisite service period.

 The
following table illustrates the various assumptions used to calculate the Black-Scholes option pricing model for options granted
for all years presented:

 Years Ended December 31,

 2023

 2022

 Weighted-average risk-free interest rates:

 3.8
 %

 3.5
 %

 Dividend yield:

 %

 %

 Weighted-average expected life (years) of the option:

 Weighted-average expected stock price volatility:

 %

 %

 Weighted-average fair value of the options granted:

 $
 0.50

 $
 0.97

 F- 17

 Additional
disclosures for options granted for all years presented:

 Years Ended December 31,

 2023

 2022

 Vesting period (years) of shares granted in period

 Contractual life (years) of shares granted in period

 Estimated forfeitures

 %

 %

 The
following table summarizes the option activity for our employees and directors during the year ended December 31, 2023:

 Weighted

 Weighted

 Average

 Aggregate

 Average

 Remaining

 Intrinsic

 Exercise
 Price

 Contractual

 Value

 Options

 (Rounded)

 per
 Share

 Term
 (Years)

 (000s)

 on January 1, 2023

 3,443,661

 $

 1.33

 4.9

 1,230

 Granted

 668,200

 $

 0.68

 Exercised

 ( 294,074

)

 $

 0.50

 Forfeited
 or expired

 ( 291,821

)

 $

 1.92

 on December 31, 2023

 3,525,966

 $

 1.22

 4.2

 $

 Exercisable
 on December 31, 2023

 2,334,458

 $

 1.15

 3.2

 $

 available for grant

 450,900

 The
aggregate intrinsic value in the table above is based on our closing stock price of $ 0.60 on the last business day for the year
ended December 31, 2023.

 Years
ended
 December
31,

 2023

 2022

 Shares exercised

 294,074

 414,455

 Total intrinsic value

 $

 $

 Cash received

 $

 $

 Based
on our election of the "with and without" approach, no realized tax benefits from stock options were recognized for
the years ended December 31, 2023 and 2022.

 (11)

 401(k)
 Profit-Sharing Plan

 We
have a 401(k) profit-sharing plan covering substantially all employees who meet defined service requirements. Contributions made
in 2023 and 2022 aggregated to $ 191 and $ 153, respectively.

 F- 18

 (12)

 S ignificant
 Customers

 We
had three significant customers for the year ended December 31, 2023.

 For the years ended

 December 31,

 Customer #

 Product Category

 2023

 2022

 Personal Care Ingredients

 %

 %

 %

 %

 %

 %

 Total

 %

 %

 Accounts
receivable balances for these three customers were approximately:

 For the years ended
 December 31,

 Customer #

 Product Category

 2023

 2022

 Personal Care Ingredients

 $
 —

 $
 1,082

 1,288

 Total

 $
 2,152

 $
 2,202

 We
currently have exclusive supply agreements with BASF Corporation ("BASF"), our largest customer, that have contingencies
outlined which could potentially result in the sale of production equipment from the Company to the customer intended to provide
capacity sufficient to meet the customer's production needs. This outcome may occur if we fail to meet certain performance
requirements. In the event of an equipment sale, upon incurring a triggering event, the equipment would be sold to the customer
at either 115 % of the equipment's net book value or the greater of 30 % of the original book value of such equipment, and
any associated upgrades to it, or 115 % of the equipment's net book value, depending on the equipment and related products.

 If
a triggering event were to occur and BASF elected to proceed with the equipment sale mentioned above, we would receive royalty
payments from this customer for products sold using our technology; however, we would lose both significant revenue and the ability
to generate significant revenue to replace that which was lost in the near term. Replacement of necessary equipment that could
be purchased and removed by the customer pursuant to this triggering event could take in excess of twelve months. Any additional
capital outlays required to rebuild capacity would probably be greater than the proceeds from the purchase of the assets as dictated
by our agreement with the customer. Similar consequences would occur if we were determined to have materially breached certain
other provisions of the supply agreement with BASF. Any such event would also likely result in the loss of many of our key staff
and line employees due to economic realities. We believe that our employees are a critical component of our success, and it could
be difficult to replace them quickly. Given the occurrence of any such event, we might not be able to hire and retain skilled
employees given the stigma relating to such an event and its impact on us.

 F- 19

 (13)

 Business
 Segmentation and Geographical Distribution

from international sources approximated $ 2,918 and $ 1,971 for the years ended December 31, 2023 and 2022, respectively. As part
of our revenue from international sources, we recognized approximately $ 1,664 and $ 1,236 in product revenue from German companies,
in the aggregate, for the years ended December 31, 2023 and 2022, respectively.

 Our
operations comprise a single business segment and all of our long-lived assets are located within the United States. We categorize
our revenue stream into three main product categories, Personal Care Ingredients, Advanced Materials and Sol sence. The
revenues for 2023 and 2022 by category are as follows:

 For
the years ended
 December

 Product Category

 2023

 2022

 $
 25,211

 $
 23,111

 Personal Care Ingredients

 9,277

 11,121

 Advanced Materials

 2,809

 3,085

 Total Sales

 $
 37,297

 $
 37,317

 (14)

 Commitments
 and Contingencies

 On
August 9, 2022, BASF filed a complaint against Nanophase in New Jersey state court (the "New Jersey Complaint"), alleging
that Nanophase had breached the 1999 Zinc Oxide Supply Agreement (the "Agreement"). BASF alleges several issues, the
one having the biggest potential impact on Nanophase being a claim that our sales through Sol sence violate the exclusivity
provision of the Agreement. BASF seeks an unspecified amount of damages, a permanent injunction enjoining sales to any party (other
than BASF) of a broad range of zinc oxide products that BASF contends are within the scope of the exclusivity provision, counsel
fees and litigation expenses. On September 7, 2022, Nanophase filed a Complaint for Declaratory Judgement in Illinois state court
(the "Illinois Complaint"), asking for a declaration that contrary to BASF's allegation, 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 Sol sence products containing zinc oxide as an ingredient.
Both companies filed Motions to Dismiss (MTD) the other's respective complaint. Nanophase's MTD BASF's New Jersey
Complaint was denied on procedural grounds on February 10, 2023, with the New Jersey court superficially noting that it did not
consider whether BASF could prove its claims. On February 28, 2023, Nanophase filed its answer to BASF's New Jersey Complaint,
denying all wrongdoing and, as mandated by New Jersey procedural requirements, counterclaims including a request for a declaration
similar to that Nanophase sought in its Illinois Complaint and a claim alleging 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 under the Agreement.
BASF subsequently 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 the zinc oxide purchase
requirement was procedurally insufficient. On October 6, 2023, the New Jersey court: denied BASF's motion to dismiss Nanophase's
declaratory judgment claim, finding that it did not duplicate BASF's breach of contract claim and that litigating that claim
would not provide Nanophase with complete relief as to the exclusivity issues raised in the counterclaim; and granted BASF's
motion to dismiss Nanophase's claim for BASF's breach of its zinc oxide purchase requirement on procedural grounds.
On March 16, 2023, the Illinois court granted BASF's MTD Nanophase's Illinois Complaint, finding it duplicative of
the New Jersey litigation. Discovery in the New Jersy litigation is ongoing. Management believes at this time that the allegations
of BASF's complaint are without merit and are unsupported by the terms of the Agreement and governing law. Per ASC 450 for
the period ending December 31, 2023, an estimated contingent loss was not recorded, and an estimated range of loss is not disclosed
as the outcome is not probable at this time and nor is a range of loss estimable.

 F- 20

 (15)

 Subsequent
 Event

 On
March 1, 2024, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement"), between the Company
and Strandler, LLC ("Strandler").

to the Purchase Agreement, the Company issued to Strandler 15,000 shares of the Company's Series X Preferred Stock (the
"Series X Preferred Stock") at a purchase price per share of $ 400, for total consideration of $ 6,000,000, in a transaction
exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. 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").

 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. 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.

 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. 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 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. 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. Upon any conversion of Preferred Stock into Common Stock by Strandler, Strandler is required to
hold the Common Stock received in the conversion for a period of 12 months.

 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.

 In
connection with the Company's entry into the Purchase Agreement, the Company also entered into (i) a Second Amendment to
Business Loan Agreement (the "Term Loan Agreement Amendment") with Strandler, LLC, (ii) a Second Amendment to Business
Loan Agreement (the "A&R Loan Agreement Amendment") with Beachcorp, LLC, which is also an affiliate of our controlling
shareholder, Bradford T. Whitmore ("Beachcorp"), and (iii) a Second Amendment to Business Loan Agreement with Beachcorp
(the "Revolving Loan Agreement Amendment" and together with the Term Loan Agreement Amendment and the A&R Term
Loan Agreement Amendment, the "Loan Agreement Amendments"). The Loan Agreement Amendments extend the maturity date
under each respective loan agreement from March 31, 2025 to October 1, 2025.

 F- 21

 EXHIBIT INDEX

 Exhibit

 Number

 2.1

 Plan and Agreement of Merger dated as of November 25, 1997 by and between the Company and its Illinois predecessor, incorporated by reference to Exhibit 2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 10-K"), SEC File No. 000-22333.

 3(i).1

 Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the 1997 10-K, SEC File No. 000-22333.

 3(i).2

 First Amendment to the Certificate of Incorporation of the Company dated July 27, 2006, incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed July 27, 2006, SEC File No. 000-22333.

 3(i).3

 Second Amendment to the Certificate of Incorporation of the Company dated August 23, 2010, incorporated by reference to Exhibit A of the Company's Definitive Proxy Statement on Schedule 14A filed July 9, 2010, SEC File No. 000-22333.

 3(i).4

 Third Amendment to the Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed August 29, 2016.

 3(i).5

 Fourth Amendment to the Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed November 22, 2019.

 3(i).6

 Fifth Amendment to the Certificate of Incorporation of the Company.

 3(ii).1

 By-Laws of the Company, incorporated by reference to Exhibit 3.2 to the 1997 10-K, SEC File No. 000-22333.

 4.1

 Specimen stock certificate representing common stock, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1/A filed November 4, 1997 (File No. 333-36937) (the "Form S-1/A").

 4.2

 Form of Warrants, incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1 filed October 1, 1997 (File No. 333-36937) (the "IPO S-1").

 4.3

 Certificate of Designations of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, SEC File No. 000-22333.

 4.4

 Stock Purchase Agreement dated August 25, 2006 between the Company and Rohm and Haas Electronic Materials CMP Holdings, Inc., incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed August 28, 2006, SEC File No. 000-22333.

 4.5

 Registration Rights Agreement dated August 25, 2006 between the Company and Rohm and Haas Electronic Materials CMP Holdings, Inc., incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed August 28, 2006, SEC File No. 000-22333.

 4.6

 Common Stock Purchase Agreement, dated February 10, 2016, between the Company and Bradford T. Whitmore, incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed February 10, 2016.

 4.7

 Common Stock Purchase Agreement, dated December 19, 2017, between the Company and Bradford T. Whitmore, incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed December 21, 2017.

 4.8

 Common Stock Purchase Agreement, dated May 13, 2019, between the Company and Bradford T. Whitmore, incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q filed May 15, 2019

 4.9

 Securities Purchase Agreement, dated November 13, 2019, between the Company and Bradford T. Whitmore, incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q filed November 14, 2019.

 4.10

 Commercial Security Agreement, dated November 20, 2019, between the Company, Sol sence, LLC and Bradford T. Whitmore, incorporated by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q filed November 14, 2019.

 E- 1

 4.11

 Certification of Designation of Series X Preferred Stock, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed March 5, 2024, EC File No. 000-22333.

 10.1

 Industrial Building Lease dated September 15, 2004 between the Company and the Village of Burr Ridge, incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (the "2004 10-K"), SEC File No. 000- 22333.

 10.2

 Industrial Building Lease Agreement between Centerpoint Properties Trust (formerly CP Financing Trust) and the Company, dated June 15, 2000, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 10-K"), SEC File No. 000-22333.

 10.3

 Lease Amendment effective October 1, 2005 between the Company and Centerpoint Properties Trust, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed October 20, 2005, SEC File No. 000-22333.

 10.4

 Second Amendment to Industrial Lease Agreement, dated as of November 13, 2014 between the Company and MLRP 1319 Marquette LLC, successor-in-interest to Centerpoint Properties Trust, incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10- K for the year ended December 31, 2014.

 10.5

 Third Amendment to Industrial Lease Agreement, entered into on October 17, 2016 and effective October 1, 2016, by and between the Company and 1319 Marquette, LLC, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed October 19, 2016.

 10.6

 Mutual Cooperation Agreement entered into on January 17, 2012, by and among the Company, C.I. Kasei Co., Ltd. and CIK NanoTek Corporation, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 20, 2012, SEC File No. 000-22333.

 10.7

 Trademark Ownership Assignment Agreement, dated March 31, 2012, between the Company and CIK NanoTek Corporation, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 4, 2012, SEC File No 000-22333.

 10.8

 Memorandum on the Payment of Royalty, dated March 31, 2012, between the Company and CIK NanoTek Corporation, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed April 4, 2012, SEC File No 000-22333.

 10.9

 Supply Agreement between the Company and Schering-Plough HealthCare Products, Inc. dated as of March 15, 1997, incorporated by reference to Exhibit 10.17 to the Form S-1/A.

 10.10*

 Zinc Oxide Supply Agreement dated as of September 16, 1999 between the Company and BASF Corporation, as assignee, incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, SEC File No. 000-22333.

 10.11*

 Amendment No. 1 to Zinc Oxide Supply Agreement dated as of January, 2001 between the Company and BASF Corporation, incorporated by reference to Exhibit 10.24 to the 2000 10-K, SEC File No. 000-22333.

 10.12

 Amendment No. 2. to Zinc Oxide Supply Agreement dated as of March 17, 2003 between the Company and BASF Corporation, incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the "2002 10-K"), SEC File No. 000-22333.

 10.13*

 Amendment No. 3 to Zinc Oxide Supply Agreement entered into on December 12, 2012, between the Company and BASF Corporation, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed December 6, 2012, SEC File No. 000-22333.

 10.14*

 Amendment No. 4 to Zinc Oxide
Supply Agreement, dated as of January 1, 2019 and entered into on March 11, 2019, between the Company and BASF Corporation, incorporated
by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q filed May 15, 2019.

 E- 2

 10.15

 Z-COTE HP-2 Brand Supply Agreement dated May 15, 2006 between the Company and BASF Corporation, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed June 20, 2006, SEC File No. 000-22333.

 10.16*

 Amended and Restated Cooperation Agreement dated August 25, 2006 between the Company and Rohm and Haas Electronic Materials CMP Inc., incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed August 28, 2006, SEC File No. 000-22333.

 10.17

 Supply Agreement effective as of March 23, 2009, between the Company and Rohm and Haas Electronic Materials CMP Inc., incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008, SEC File No. 000-22333.

 10.18*

 Distributor Agreement dated October 24, 2005 between Johnson Matthey Catalog Company, Inc., d/b/a ALFA AESAR and the Company, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed November 1, 2005, SEC File No. 000-22333.

 10.19*

 Supply Agreement dated March 3, 2006 between Roche Diagnostics GmbH and the Company, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed March 9, 2006, SEC File No. 000-22333.

 10.20*

 First Amendment to the Supply Agreement entered into on November 19, 2014 between the Company and Roche Diagnostics GmbH, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed November 25, 2014.

 10.21*

 Second Amendment to the Supply Agreement, entered into on November 21, 2016, between the Company and Roche Diagnostics GmbH, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed November 28, 2016.

 10.22*

 Third Amendment to the Supply Agreement, entered into on February 3, 2023, between the Company and Roche Diagnostics GmbH.

 10.23

 Joint Development Agreement dated March 23, 2004 between the Company and Altana Chemie AG, incorporated by reference to Exhibit 10.29 to the 2003 10-K, SEC File No. 000-22333.

 10.24*

 Agreement dated July 7, 2008 between the Company and Altana Chemie GmbH, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed July 18, 2008, SEC File No. 000-22333.

 10.25*

 Settlement and Termination Agreement, dated August 20, 2010, between the Company and Altana Chemie GmbH, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 25, 2010, SEC File No. 000-22333.

 10.26*

 Supply Agreement, dated as of March 31, 2016, between the Company and Ester Solutions Company, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 6, 2016.

 10.27

 First Amendment to Supply Agreement, dated May 21, 2018, by and between Nanophase Technologies Corporation and Hallstar Ester Solutions Corporation (formerly known as Ester Solutions Company), incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 25, 2018.

 10.28

 Joint Development Agreement, dated as of July 31, 2019, between the Company and Sumitomo Corporation of Americas, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 2, 2019.

 10.29

 Joint Development & Supply Agreement, dated December 12, 2016, by and between Sol sence, LLC and Colorescience Inc., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 24, 2018.

 10.30

 Amended and Restated Joint Development & Supply Agreement, executed by Sol sence, LLC on May 18, 2018, by and between Sol sence, LLC and Colorescience Inc., incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 24, 2018.

 10.31

 Promissory Note, dated March 4,
2015, granted by the Company in favor of Libertyville Bank and Trust Company, incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed March 10, 2015.

 E- 3

 10.32

 Commercial Security Agreement, dated March 4, 2015, between the Company and Libertyville Bank and Trust Company, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed March 10, 2015.

 10.33

 Change in Terms Agreement, dated
March 4, 2016, between the Company and Libertyville Bank and Trust Company, incorporated by reference to Exhibit 10.2 of the Current
Report on Form 8-K filed March 10, 2016.

 10.34

 Change in Terms Agreement, dated February 14, 2017, between the Company and Libertyville Bank and Trust Company, incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

 10.35

 Promissory Note, executed by the Company on March 26, 2018, granted by the Company in favor of Libertyville Bank and Trust Company, incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

 10.36

 Commercial Security Agreement, executed by the Company on March 26, 2018, between the Company and Libertyville Bank and Trust Company, incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

 10.37

 Business Loan Agreement, executed by the Company on March 22, 2019, between the Company and Libertyville Bank and Trust Company, incorporated by reference to the Exhibit 10.32 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

 10.38

 Change in Terms Agreement, executed by the Company on March 22, 2019, between the Company and Libertyville Bank and Trust Company, incorporated by reference to the Exhibit 10.33 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

 10.39

 Business Loan Agreement, dated November 16, 2018, between the Company and Beachcorp, LLC, incorporated by reference to the Company's Quarterly Report on Form 10-Q filed November 19, 2018.

 10.40

 Promissory Note, dated November 19, 2018, made by the Company and payable to the order of Beachcorp, LLC to evidence a term loan in the original principal amount of up to $500,000, incorporated by reference to the Company's Quarterly Report on Form 10-Q filed November 19, 2018.

 10.41

 Promissory Note, dated November 19, 2018, made by the Company and payable to the order of Beachcorp, LLC to evidence revolving borrowings in a principal amount of up to $2,000,000, incorporated by reference to the Company's Quarterly Report on Form 10-Q filed November 19, 2018.

 10.42

 First Amendment to Business Loan Agreement, dated March 23, 2020, between the Company and Beachcorp, LLC, incorporated by reference to the Company's Annual Report on Form 10-K filed March 30, 2020.

 10.43

 Fourth Amendment to Business Loan Agreement, dated April 21, 2021, between the Company and Beachcorp, LLC, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 21, 2021.

 10.44

 Business Loan Agreement, dated January 28, 2022, between the Company and Beachcorp, LLC, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed February 2, 2022.

 10.45

 Business Loan Agreement, dated January 28, 2022, between the Company and Strandler, LLC, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed February 2, 2022.

 10.46

 Amended and Restated Business Loan Agreement, dated January 28, 2022, between the Company and Beachcorp, LLC, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed February 2, 2022.

 10.47

 Replacement Promissory Note, dated
January 28, 2022, made by the Company and payable to the order of Beachcorp, LLC to evidence
revolving borrowings in a principal amount of up to $8,000,000, incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K filed February 2, 2022.

 E- 4

 10.48

 Promissory Note, dated January 28, 2022, made by the Company and payable to the order of Strandler, LLC to evidence a term loan in the original principal amount of up to $1,000,000, incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed February 2, 2022.

 10.49

 Promissory Note, dated January 28, 2022, made by the Company and payable to the order of Beachcorp, LLC to evidence revolving borrowings in a principal amount of up to $4,000,000, incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed February 2, 2022.

 10.50

 First Amendment to Amended and Restated Business Loan Agreement with Beachcorp, LLC, incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, SEC File No. 000-22333.

 10.51

 Replacement Promissory Note with Beachcorp, LLC, incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, SEC File No. 000-22333.

 10.52

 First Amendment to Business Loan Agreement with Beachcorp, LLC, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, SEC File No. 000-22333.

 10.53

 First Amendment to Business Loan Agreement with Strandler, LLC, incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, SEC File No. 000-22333.

 10.54

 Promissory Note with Strandler, LLC, incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, SEC File No. 000-22333.

 10.55

 Securities Purchase Agreement with Strandler, LLC, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 5, 2024, EC File No. 000-22333.

 10.56

 Second Amendment to Business Loan Agreement with Strandler, LLC, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed March 5, 2024, EC File No. 000-22333.

 10.57

 Second Amendment to Amended and Restated Business Loan Agreement with Beachcorp, LLC, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed March 5, 2024, EC File No. 000-22333.

 10.58

 Second Admendment to Business Loan Agreement with Beachcorp, LLC, incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed March 5, 2024, EC File No. 000-22333.

 10.59

 Employment Agreement effective August 12, 2009 between the Company and Jess Jankowski, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, SEC File No. 000-22333. +

 10.60

 Employment Agreement dated November
28, 2012, between the Company and Kevin Cureton, incorporated by reference to Exhibit 10.36 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2012, SEC File No. 000-22333. +

 10.61

 Nanophase Technologies Corporation 2004 Equity Compensation Plan ("2004 Equity Plan"), incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (File No. 333-119466). +

 10.62

 2008 Long-Term Cash Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 25, 2008, SEC File No. 000-22333.+

 10.63

 Nanophase Technologies Corporation 2010 Equity Compensation Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed August 29, 2016.+

 10.64

 Form of Stock Option Award Agreement under the 2010 Equity Compensation Plan, incorporated by reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013.+

 10.65

 Nanophase Technologies Corporation 2019 Equity Compensation Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed November 22, 2019.+

 10.66

 Building Lease, dated as of September 15, 2010, between the Company and the Village of Burr Ridge, incorporated by reference to Exhibit 10.50 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

 E- 5

 10.67

 Building Lease, dated as of March 13, 2017, between the Company and the Village of Burr Ridge, incorporated by reference to Exhibit 10.51 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

 10.68*

 Know-How License Agreement, executed by the Company on June 26, 2017, between the Company and Eminess Technologies, Inc., incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed June 29, 2017.

 10.70

 Technology Development Agreement, executed by the Company on June 26, 2017, between the Company and Eminess Technologies, Inc., incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed June 29, 2017.

 10.71*

 Exclusive Supply Agreement, effective April 1, 2021, between Solesence, LLC and Ilia Beauty, Inc., incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed June 14, 2021.

 10.72*

 Lease, effective December 1, 2021, between the Company and FR JH 10, LLC, incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed December 9, 2021.

 21.1

 Subsidiary of the Company. (filed herewith)

 23.1

 Consent of RSM US LLP. (filed herewith)

 31.1

 Certification of the Chief Executive Officer (principal executive officer) pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. (filed herewith)

 31.2

 Certification of the Chief Financial Officer (principal financial officer) pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. (filed herewith)

 Certification of the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) pursuant to 18 U.S.C. Section 1350. (filed herewith)

 *

 Confidentiality previously granted for portions of this agreement.

 +

 Indicates management contracts or compensatory plans or arrangements.

 E- 6

 SIGNATURES

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28 th day of March, 2024.

 By:

 /s/
 Jess A. Jankowski

 Jess
 A. Jankowski

 President
 and Chief Executive Officer

to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 28 th day of March, 2024.

 Signature

 Title

 /s/
 Jess A. Jankowski

 President,
 Chief Executive Officer (principal executive officer,

 Jess
 A. Jankowski

 principal
 financial officer, and principal accounting officer) and Director

 /s/
 R. Janet Whitmore

 Chair
 of the Board of Directors

 R.
 Janet Whitmore

 /s/
 Laura M. Beres

 Laura
 M. Beres

 /s/
 Mark E. Miller

 Mark
 E. Miller