UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended:
or
the Securities Exchange Act of 1934
For the transition period from to _______ to _______
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(Exact name of registrant as specified in its charter)
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| incorporation or organization) | Identification No.) |
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area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether
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.
Indicate by check mark whether
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Indicate 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 “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | 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. ☐
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As of May 12, 2025, there were shares outstanding of common stock, par value $.01, of the registrant.
SOLESENCE, INC.
QUARTER ENDED MARCH 31, 2025
INDEX
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SOLESENCE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited Consolidated Condensed)
| As of | ||||||||
| March 31, 2025 | December 31, 2024 | |||||||
| (in thousands except share and per share data) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Trade accounts receivable | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Trade accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Equipment and leasehold improvements, net | ||||||||
| Operating leases, right of use | ||||||||
| Other assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Line of credit – accounts receivable, related party | $ | $ | ||||||
| Line of credit – inventory, related party | ||||||||
| Term debt, related party | ||||||||
| Current portion of operating lease obligations | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term portion of operating lease obligations | ||||||||
| Asset retirement obligations | ||||||||
| Total long-term liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, and shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; shares issued and outstanding on March 31, 2025 and December 31 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
(See accompanying Notes to Consolidated Financial Statements)
3
SOLESENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited Consolidated Condensed)
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (in thousands except share and per share data) | ||||||||
| Revenue: | ||||||||
| Product revenue | $ | $ | ||||||
| Other revenue | ||||||||
| Total revenue | ||||||||
| Operating expense: | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Research and development expense | ||||||||
| Selling, general and administrative expense | ||||||||
| Net income from operations | ||||||||
| Interest expense | ||||||||
| Net income before provision for income taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Net income per share-basic | $ | . | $ | |||||
| Weighted average number of basic common shares outstanding | ||||||||
| Net income per share-diluted | $ | . | $ | |||||
| Weighted average number of diluted common shares outstanding | ||||||||
(See accompanying Notes to Consolidated Financial Statements)
4
SOLESENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited Consolidated Condensed)
(in thousands except share data)
|
|
Preferred Stock |
|
Common Stock | Additional Paid-in Capital | Accumulated Deficit | ||||||||||||||||||||||
| Description | Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||
| Balance on December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of shares and stock option exercises | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net income for the three months ended March 31, 2024 | — | — | ||||||||||||||||||||||||||
| Balance on March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance on December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of shares and stock option exercises | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||||
| Net income for the three months ended March 31, 2025 | — | — | ||||||||||||||||||||||||||
| Balance on March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
(See accompanying Notes to Consolidated Financial Statements)
5
SOLESENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited Consolidated Condensed)
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| (in thousands) | ||||||||
| Operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Changes in assets and liabilities related to operations: | ||||||||
| Trade accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ||||||||
| Deferred revenue | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Change in right of use asset and lease liability, net | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Acquisition of equipment and leasehold improvements | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Financing activities: | ||||||||
| Proceeds from line of credit - inventory, related party | ||||||||
| Proceeds from line of credit – accounts receivable, related party | ||||||||
| Payments to line of credit – accounts receivable, related party | ( | ) | ||||||
| Payments to term loans, related party | ( | ) | ||||||
| Proceeds from issuance of mezzanine preferred stock | ||||||||
| Proceeds from issuance of stock and exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Increase in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Supplemental non-cash investing and financing activities: | ||||||||
| 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)
6
SOLESENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited Consolidated Condensed)
(In thousands, except share and per share data or as otherwise noted herein)
(1) Basis of Presentation
The accompanying unaudited consolidated condensed interim financial statements of Solesence, Inc. (“Solésence”, “Company”, “we”, “our”, or “us”) reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of our financial position and operating results for the interim periods presented. All statements include the results from both Solesence, Inc. and our wholly-owned subsidiary, Solésence, LLC. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission.
(2) Description of Business
Solesence, Inc. (“Solésence”, “Company”, “we”, “our”, or “us”) is a science-driven company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence 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 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 Solésence beauty science subsidiary. In terms of our life sciences focus, we have seen demand decrease for our medical diagnostics ingredients. 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 Solésence® 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 Solésence 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. On April 8, 2025 the Company’s securities were uplisted to Nasdaq trading under the symbol SLSN. Prior to listing on Nasdaq our common stock traded 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.
Under SEC Release 33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company and accordingly, it has scaled some of its disclosures of financial and non-financial information in this quarterly report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.
(3) Revenues and Other Income
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.
7
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. During
the three months ended March 31, 2025, no customers earned a volume rebate. For the year ended December 31, 2024, one customer earned
a volume rebate of $
Contract balances at March 31, 2025, December 31, 2024, and December 31, 2023 are as follows:
| Accounts Receivable | Contract Liabilities | |||||||
| Balance, December 31, 2023 | $ | $ | ||||||
| Balance, December 31 2024 | ||||||||
| Balance, March 31, 2025 | ||||||||
Revenue recognized in the
reporting period that was included in the contract liability balance at the beginning of the period was $
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. Other revenue recognized
over time was $
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. Revenue is recognized when the goods are shipped.
The Company will for some customers arrange for the shipping of the finished goods. Revenues and costs associated with the shipment of the finished goods are recorded separately within product revenue and cost of revenue, respectively, on the consolidated statement of operations. With regard to revenue recognition, shipping activities that occur prior to the customers’ obtaining control of the goods are not a promised service to the customer, but rather activities to fulfill the Company’s promise to transfer the goods. As such, these activities are not deemed a performance obligation requiring allocation of the transaction price. Similarly, shipping activities that occur after the customers’ obtaining control of the goods are, as a matter of policy, also not a promised service to the customer, but rather an activity to fulfill the Company’s promise to transfer the goods.
Included in the computation of diluted earnings per share for the three months ended March 31, 2025, was a total of in potential shares of common stock. Included in the computation of diluted earnings per share for the three months ended March 31, 2024 was a total of in potential common stock. This total was comprised of: 1) options to purchase approximately shares of common stock outstanding, and 2) preferred stock convertible into a total of shares of common stock outstanding as of March 31, 2024.
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Numerator: (in Thousands) | ||||||||
| Net income | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average number of basic common shares outstanding | ||||||||
| Weighted average additional shares assuming conversion of in-the-money stock options to common shares | ||||||||
| Weighted average additional shares assuming conversion of issued convertible preferred stock | ||||||||
| Weighted average number of diluted common shares outstanding | ||||||||
| Basic earnings per common share: | ||||||||
| Net income per share – basic | $ | $ | ||||||
| Diluted earnings per common share: | ||||||||
| Net income per share – diluted | $ | $ | ||||||
8
(5) 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, accounts receivable, net, accounts payable and accrued expenses, along with any short-term and long-term borrowings as described in Note 6. The carrying values of cash, accounts receivable, net, and accounts payable and accrued expenses are reasonable estimates of their fair value due to the short-term nature of these accounts. 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 March 31, 2025 and December 31, 2024.
(6) Related Party Notes and Lines of Credit
Notes and lines of credit consist of the following:
| As of March 31, 2025 | As of December 31, 2024 | |||||||||||||||||
| Rate at March 31, 2025 |
Total Borrowing Capacity |
Outstanding Borrowed Balance |
Total Borrowing Capacity |
Outstanding Borrowed Balance |
||||||||||||||
| Libertyville Bank & Trust (1) | $ | $ | $ | $ | ||||||||||||||
| Libertyville Bank & Trust (2) | ||||||||||||||||||
| Beachcorp, LLC (3) | ||||||||||||||||||
| Beachcorp, LLC (4) | ||||||||||||||||||
| Strandler, LLC (5) | ||||||||||||||||||
| 1) |
| 2) |
| 3) |
| 4) |
9
| 5) |
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 March 31, 2025, and December 31, 2024 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. The Company’s loan agreements with Strandler, LLC and Beachcorp, LLC currently are set to expire on October 1, 2025, which could become an operating risk if we are not able to refinance or extend the maturity dates.
Related party interest expense consists of the following:
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Interest expense, related parties | $ | $ | ||||||
| Accrued interest expense, related parties | ||||||||
Outstanding balances associated with related parties are as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| Beachcorp, LLC | $ | $ | ||||||
| Strandler, LLC | ||||||||
(7) Leases
As of March 31, 2025, the Company entered into two new operating leases.
The first lease is scanning
equipment from Lumafield, in which Solésence paid the entire amount of future lease payments up front, thereby increasing operating
right-of-use assets with no related increase to operating lease liabilities. The term of the Lumafield lease is
The second lease is with Penske
for a truck. The term of the lease is
Solésence has one existing subleases that are now month to month. There are no future undiscounted lease payments that are guaranteed.
(8) Inventories, net
Inventories consist of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Total Inventories, net | ||||||||
(9) Capital Stock
As of March 31, 2025, and December 31, 2024, we had authorized but unissued shares of preferred stock.
10
Pursuant to the Securities Purchase Agreement executed
on March 1, 2024, the Company issued to Strandler shares of the Company’s Series X Preferred Stock (the “Series X Preferred
Stock”) at a purchase price per share of $, for total consideration of $
(10) Significant Customers
We had three significant customers for the period ended March 31, 2025 and 2024.
Revenues from these three customers, as a percentage of total Company revenue, was approximately:
| For the three months ended March 31, | |||||||||||
| Customer # | Product Category | 2025 | 2024 | ||||||||
| 1 | Consumer Products | % | % | ||||||||
| 2 | Personal Care Ingredients | % | % | ||||||||
| 3 | Consumer Products | % | % | ||||||||
| Total | % | % | |||||||||
Accounts receivable balances for these three customers were approximately:
| As of March 31, | |||||||||||
| Customer # | Product Category | 2025 | 2024 | ||||||||
| 1 | Consumer Products | $ | $ | ||||||||
| 2 | Personal Care Ingredients | ||||||||||
| 3 | Consumer Products | ||||||||||
| Total | $ | $ | |||||||||
We currently have
exclusive supply agreements with BASF Corporation (“BASF”), our largest personal care ingredient 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
If a triggering event were to occur and BASF elected to proceed with the equipment sale mentioned above, we would lose a significant source of revenue.
(11) Business Segmentation and Geographical Distribution
The Company operates as a single business segment, in which the factors used to make this determination include differences in products, services, geographical areas, regulatory environment, and other such criteria considered for the appropriateness of aggregation. The types of products and services for which the sole reportable segment, which is the same as the Company as a whole, offered by the Company are discussed in Note 2. Since the Company operates as a single segment, there were no intra-entity sales or transfers.
The role of Chief Operating Decision Maker for the Company is comprised of a committee that includes the Chief Executive and Chief Operating Officers. The Chief Operating Decision Maker assesses performance for the single segment and decides how to allocate resources based on net income and gross profit that also is reported on the income statement as net income. The measure of segment assets is reported on the balance sheet as total assets. The accounting policies of the sole segment are the same as those described in the summary of significant accounting policies in our most recently issued Form 10-K for the year ended December 31, 2024.
11
The Chief Operating Decision Maker uses gross profit and net income to evaluate Company performance and in what way to allocate resources. Significant segment expenses, which are the same as the entity as a whole, are as follows:
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Total revenue | $ | $ | ||||||
| Employee costs | ||||||||
| Contractors and professional services | ||||||||
| Materials and supplies | ||||||||
| Depreciation | ||||||||
| Interest expense | ||||||||
| Tax expense | ||||||||
| Facilities | ||||||||
| Shipping | ||||||||
| Testing | ||||||||
| IT services | ||||||||
| Insurance | ||||||||
| Manufacturing other expense | ( | ) | ||||||
| Selling, general and administrative expense | ||||||||
| Total Expense | ||||||||
| Net Income | $ | $ | ||||||
Revenue from international
sources approximated $
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 consumer products. The revenues for the three months ended March 31,2025 and 2024 by category are as follows:
For the three months ended March 31 | ||||||||
| Product Category | 2025 | 2024 | ||||||
| Consumer Products | $ | $ | ||||||
| Personal Care Ingredients | ||||||||
| Advanced Materials | ||||||||
| Total Sales | $ | $ | ||||||
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
On March 7, 2025, Nanophase Technologies Corporation announced its rebranding as Solesence, Inc. (“Solésence,” “Company,” “we,” “our,” or “us”), marking a new chapter in its commitment to innovation, self-expression, and inclusivity in skin health. The Company’s stock continued to trade under the NANX ticker symbol until April 8, 2025 when it began trading on Nasdaq under the symbol SLSN. Our corporate website transitioned to solesence.com. Investor relations information, including historic Nanophase financials and disclosures, is available at ir.solesence.com. The Company changed its legal name to Solesence, Inc. by amending its certificate of incorporation with the State of Delaware on March 10, 2025.
Solésence, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence consumer products subsidiary”), is a leading innovator in scientifically-driven health care solutions across beauty and life science categories, protecting skin from environmental aggressors and enhancing the aesthetic appeal of healthy products. Skin health, addressed through both our consumer products and our Active Pharmaceutical Ingredients (“APIs”), currently make up the great majority of our business, with additional revenue being generated from other legacy advanced materials applications. The Company was incorporated in Illinois on November 25, 1989 and became a Delaware corporation during November 1997. Our common stock now trades on Nasdaq under the symbol SLSN after previously trading under the NANX ticker on the OTCQB marketplace. 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 comprehensive production, from engineered materials, formulation development, and finished product development, to commercial manufacturing and packaging capabilities. Our expertise in materials engineering allows us to effectively coat and disperse materials on a nano and “non-nano” scale for use in a variety of markets in skin health, including for use in sunscreens as APIs. We believe our innovative approach to creating these materials gives us technological and market advantages. We also leverage expertise to develop skin care, sun care, and color cosmetics products (“Solésence consumer products”) that offer unique skin health benefits. We offer these for sale to brands who ultimately sell products to consumers in both prestige and mass markets within the beauty industry. Our Solésence consumer products have received broad acceptance in the marketplace. Due to the enhanced efficacy and aesthetic qualities offered by our proprietary technology platform, Solésence consumer products satisfy growing consumer demands for “clean” and inclusive beauty across a range of product formats and categories. The vertically integrated nature of our Solésence consumer products helps us to develop ingredient technologies and formulas in tandem. We have leveraged this to develop specialized formulation know-how with our unique ingredients, improve efficiency, and avoid potential major supply chain challenges, while also addressing ongoing sustainability efforts.
Given our technological position, in addition to the historical market acceptance of our APIs for use in skin health products and sunscreens, we have seen rapidly growing sales for our suite of Solésence consumer products. Due to the expanding demand from our brand partners, we have further refined our strategy to reflect our view that consumer products should be the major focus of our growth strategy. Management believes that this growth is happening now due to a confluence of our technology and market conditions that favor the types of products we produce. We continue to see unprecedented demand for these products. Coupled with our expanded and growing expertise in these areas, we believe we are well positioned to enjoy growth into the future. This success had led us to focus our combined business-, ingredient technology-, and product-development capabilities on products that bring unique performance to this area. While we will continue to produce and sell materials to our other advanced materials customers, it is not our strategic focus, and we expect it to make up less of our total business over time. 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.
Solésence, now partners with brands to develop, manufacture, and market products and ingredients that enhance lives through healthy skin.
Results of Operations
Total revenue increased to $14,625 for the three months ended March 31, 2025, compared to $9,868 for the same period in 2024. Much of our revenue was from our three largest customers for the three-month periods ended March 2025, and 2024, respectively. This reflects sales to our largest customers for our consumer products and sales of APIs to our largest customer in personal care ingredients. This is the revenue breakdown, as a percentage of total revenue, from the customers referenced above during the three-months periods ended March 31, 2025, and 2024 respectively:
| For the three months ended | |||||||||||
| March 31, | |||||||||||
| Customer # | Product Category | 2025 | 2024 | ||||||||
| 1 | Consumer Products | 25 | % | 35 | % | ||||||
| 2 | Personal Care Ingredients | 9 | % | 14 | % | ||||||
| 3 | Consumer Products | 8 | % | 12 | % | ||||||
| Total | 42 | % | 61 | % | |||||||
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Product revenue, the primary component of our total revenue, increased to $14,575 for the three months ended March 31, 2025, compared to $9,772 during the same period of 2024. The three-month product revenue was due to higher sales in our consumer products category and flat sales in the personal care ingredients product categories and advanced materials product category.
Other revenue decreased to $50 the three-month period ended March 31, 2025, compared to $96 for the same period in 2024, respectively. Other revenues are typically comprised primarily of developmental or licensing fees.
Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $11,243 for the three months ended March 31, 2025, compared to $6,288 for the same period in 2024. The increase for the three months in the cost of revenue was primarily driven by increased volume, manufacturing operating inefficiencies, and facilities improvements. While we typically pass-through costs to our customers, we sometimes cannot pass through 100% of pricing increases on raw materials, and even with pass throughs, our gross margin percentage is negatively impacted by higher material costs. The Company continues to monitor the potential impact of the new tariffs on our materials sourced internationally.
Capacity is a key area of focus to increase throughput first, followed quickly by increased cost efficiency once we can achieve greater scale. Our planning has had us adding to our current fixed manufacturing cost structure through 2025 to accommodate additional growth, and to build a better base for further growth beyond that level. 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 consumer 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. Our most critical operational issue today is reducing controllable variable product manufacturing costs.
Research 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. 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 Solésence 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.
Research and development expense increased to $1,018 for the three months ended March 31, 2025, compared to $910 for the same period in 2024. The increase is due in large part to increased legal costs related to research and development, and salaries in 2025 compared to 2024.
Selling, general and administrative expense increased to $2,108 for the three months ended March 31, 2025, compared to $1,559 for the same period in 2024. The increase is due to an increase in the allowance for credit loss, increased legal costs and increased employee-related costs in 2025 to when compared to 2024.
Inflation
We believe inflation has had an incremental impact on our costs of operations and financial position to date. However, supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, could have a material effect on our operations and financial position in 2025 if we are unable to pass through any applicable increases under our present contracts or through to our markets in general. We have begun to increase pricing where possible and continue to adjust our pricing to the extent supported by the markets we are in, and under any contract limitations we may have.
Liquidity and Capital Resources
Cash, cash proceeds and use of cash for the three months ended March 31, 2025, 2024, and year ended December 31, 2024 were:
| Three months ended March 31, 2025 | Three months ended March 31, 2024 | Year ended December 31, 2024 | ||||||||||
| Total cash | $ | 1,817 | $ | 2,018 | $ | 1,409 | ||||||
| Cash (used in) provided by operating activities | (7,221 | ) | (3,855 | ) | 1,971 | |||||||
| Net cash used in investing activities | 133 | (85 | ) | (4,558 | ) | |||||||
| Net cash provided by financing activities | 7,496 | 4,236 | 2,274 | |||||||||
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The net cash used in operating activities during the three months ended March 31, 2025 was primarily due to increased accounts receivable, net and inventory, net offset by net income and increased deferred revenue. Net cash used in investing activities was attributable to expenditures on capital equipment for all periods presented above. The net cash provided by financing activities was attributable to the increased use of debt.
Our actual future capital requirements in 2025 and beyond will depend on many factors, including customer acceptance of our current and potential future consumer products, APIs sold as ingredients in to the skin health markets, medical diagnostics ingredients, and other engineered materials, applications, and products, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand our manufacturing capabilities and to market and sell these products and ingredients. 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, and conditions within the markets supplying labor and materials for capital equipment, we expect that capital spending relating to currently known capital needs for 2025 will be between $2 million and $4 million, to be funded by profit from operations, our existing loans and lines of credit, and possible new debt 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 2025 capital investment to exceed the top of this range.
Additional Consideration
We have federal net operating loss carryforwards for tax purposes of approximately $42 million on December 31, 2024. Because the Company may experience “ownership changes” within the meaning of the U.S. Internal Revenue Code (“IRC”) in connection with any future equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, $36 million of this loss carryforward will expire between 2025 and 2037. Given changes to the IRC, net operating loss carryforwards generated after January 1, 2018 do not expire, therefore, $6.8 million in net operating losses generated since January 1, 2018 do not expire. We have Illinois net loss deduction carryforwards for tax purposes of approximately $18.2 million on December 31, 2024. Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2030 and 2043.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purposes of raising capital, incurring debt or operating our business. We do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.
Safe Harbor Provision
We want to provide investors with more meaningful and useful information. As a result, this Quarterly Report on Form 10-Q (the “Form 10-Q”) contains and incorporates by reference certain “forward-looking statements”, as defined in 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 2025 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 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 Rare Earth elements, specifically cerium oxide, as well as high purity zinc; uncertain demand for, and acceptance of, our Solésence products, and our advanced materials; our manufacturing capacity and product mix flexibility in light of customer demand; our limited marketing experience, including with our suite of Solésence products; changes in development and distribution relationships; the impact of competitive products and technologies; our dependence on patents and protection of proprietary information; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations, especially any new governmental regulations focusing on the processing, handling, storage or sale of nanomaterials, that could be difficult to respond to or costly to comply with; business interruptions due to unexpected events or public health crises, including viral pandemics such as COVID-19; and the resolution of litigation or other legal proceedings in which we may become involved. In addition, our forward-looking statements could be affected by general industry and market conditions and growth rates. Readers of this Quarterly Report on Form 10-Q 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for a smaller reporting company.
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Item 4. Controls and Procedures
Disclosure controls
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 officers, 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 Principal Executive Officer and 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 Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at reaching that level of reasonable assurance.
Internal control over financial reporting
The Company’s management, including the CEO (who is also currently acting as both the Company’s principal executive officer and the Company’s principal financial officer), confirm that there was no change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. | |
| Exhibit 31.2 | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. | |
| Exhibit 32 |
Certification of the Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
| |
| Exhibit 101 | The following materials from Solesence, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in XBRL (Extensible Business Reporting Language): (1) the Balance Sheets, (2) the Statements of Operations, (3) the Statements of Shareholders Equity, (4) the Statements of Cash Flows, and (5) the Notes to Unaudited Consolidated Condensed Financial Statements. |
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SIGNATURES
Pursuant to the requirements 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.
| SOLESENCE, INC | |||
| Date: May 13, 2025 | By: | /s/ JESS A. JANKOWSKI | |
| Jess A. Jankowski | |||
| President and Chief Executive Officer | |||
| (principal executive officer, and principal financial officer) | |||
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