Financial Performance - Revenue for Q3 2025 was $14.5 million, a decrease of 14.5% compared to $16.9 million in Q3 2024[9] - Net loss for Q3 2025 was $1.1 million, compared to a net income of $3.0 million in Q3 2024[9] - Gross profit for Q3 2025 was $3.4 million, a decline from $6.1 million in Q3 2024[9] - Product revenue for Q3 2025 was $14,533,000, a decrease of 13.4% from $16,785,000 in Q3 2024[22] - The company reported a net loss of $1,120,000 for Q3 2025, compared to a net income of $3,045,000 in Q3 2024[22] - Adjusted EBITDA for the nine months ended September 30, 2025, was $3,275,000, down 49.8% from $6,532,000 in the same period of 2024[22] Margins and Expenses - Gross margin in Q3 2025 was 23%, down from 36% in the same period last year[9] - Research and development expenses for Q3 2025 were $1.1 million, compared to $970,000 in Q3 2024[21] - Selling, general and administrative expenses increased to $3.1 million in Q3 2025 from $1.9 million in Q3 2024[21] - Research and development expenses for Q3 2025 totaled $1,082,000, an increase of 11.5% from $970,000 in Q3 2024[22] - Selling, general and administrative expenses for Q3 2025 were $3,069,000, up 58.7% from $1,934,000 in Q3 2024[22] - Interest expense increased to $339,000 in Q3 2025 from $153,000 in Q3 2024[22] Assets and Liabilities - Total current assets increased to $32.8 million as of September 30, 2025, from $29.3 million at the end of 2024[17] - Total liabilities decreased to $36.8 million as of September 30, 2025, from $35.1 million at the end of 2024[17] Strategic Focus - The company is focused on expanding its product offerings in skin care, sun care, and color cosmetics despite a challenging market environment[3] Other Income and Tax Provisions - The company recorded other income of $1,234,000 for the nine months ended September 30, 2025, compared to no other income in the same period of 2024[22] - The provision for income taxes for the nine months ended September 30, 2025, was $390,000, while there was no provision in the same period of 2024[22]

Revenue Performance - Total revenue decreased to $14,597 for the three months ended September 30, 2025, compared to $16,866 for the same period in 2024, but increased to $49,581 for the nine months ended September 30, 2025, compared to $39,780 for the same period in 2024[63] - Product revenue decreased to $14,533 for the three months ended September 30, 2025, compared to $16,785 during the same period of 2024, while it increased to $49,369 for the nine months ended September 30, 2025, compared to $39,479 during the same period of 2024[63] Expenses - Research and development expense increased to $1,082 for the three months ended September 30, 2025, compared to $970 for the same period in 2024, and to $3,055 for the nine months ended September 30, 2025, compared to $2,746 for the same period in 2024[68] - Selling, general and administrative expense increased to $3,069 for the three months ended September 30, 2025, compared to $1,934 for the same period in 2024, and to $8,188 for the nine months ended September 30, 2025, compared to $5,321 for the same period in 2024[70] - Cost of revenue increased to $11,227 for the three months ended September 30, 2025, compared to $10,764 for the same period in 2024, and to $36,952 for the nine months ended September 30, 2025, compared to $26,358 for the same period in 2024[65] Cash Flow and Capital Expenditure - The net cash used in operating activities during the nine months ended September 30, 2025, was $(10,386), primarily due to increased accounts receivable and decreased accounts payable[73] - Total cash decreased to $429 for the nine months ended September 30, 2025, compared to $2,925 for the same period in 2024[73] - The company expects capital spending for 2025 to be between $0.1 million and $1 million, funded by profit from operations and existing loans[74] Tax and Financial Position - The company has federal net operating loss carryforwards for tax purposes of approximately $42 million as of December 31, 2024[75] Market and Operational Risks - Inflation has had an incremental impact on the company's costs of operations, with potential material effects in 2025 if price increases cannot be passed through[72] - The company has incurred losses since its incorporation but aims to achieve consistent profitability in the future[78] - There is a dependence on a limited number of key customers, which poses a risk of order cancellations[78] - The company faces challenges in obtaining working capital on acceptable terms[78] - Demand for Solésence products and advanced materials remains uncertain, impacting future sales[78] - The company has limited marketing experience with its Solésence product suite, which could affect market penetration[78] - Potential new governmental regulations regarding nanomaterials could increase compliance costs[78] - Business interruptions due to unexpected events, including public health crises, are a risk factor[78] - The company is subject to competitive pressures from other products and technologies in the market[78] - The ability to maintain an appropriate electronic trading venue for its securities is crucial for investor confidence[78] - Forward-looking statements are subject to various risks and uncertainties that could materially affect future results[78]

Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $14.5 million, a decrease of 14% year-over-year, attributed to a general softening in the industry and inventory adjustments by customers [18][19] - Gross profit was $3.4 million, down from $6.1 million in Q3 2024, with a gross margin of 23% compared to 36% for the same period last year [18][19] - The company reported a net loss of $1.1 million compared to net income of $3 million in Q3 2024, with adjusted EBITDA showing a loss of $435,000 compared to a profit of $3.6 million in the previous year [20] Business Line Data and Key Metrics Changes - The company has seen a shift in open orders, which represent the total value of customer orders, increasing to $64 million in Q3 2025 from $34 million in Q3 2024 [18] - The complexity of product design and manufacturing has been highlighted as a challenge, impacting profitability and operational efficiency [11][12] Market Data and Key Metrics Changes - The beauty industry is experiencing a slowdown, with consumer sentiment affecting inventory levels and lead times from brand partners [27][75] - Despite the overall market softness, the segment for SPF-infused beauty products is growing faster than the industry average, indicating a potential area for growth [75] Company Strategy and Development Direction - The company aims to maintain its leadership in the mineral-based beauty industry, focusing on scientific excellence and innovation [6][7] - Recent organizational changes have been made to improve product design, labor efficiency, and inventory control, which are expected to enhance profitability [11][14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to grow at a multiple of the industry's growth rate, despite the current challenges [10][27] - The leadership transition is seen as a positive step towards addressing operational issues and improving overall performance [4][9] Other Important Information - The company has established over 90 globally issued patents and has won multiple awards for product and technology innovation [6] - Significant improvements in labor efficiency have been noted, with a reduction in average labor cost per unit by close to 25% year-over-year [14] Q&A Session Summary Question: Concerns about repeated mistakes and sales outlook - Management acknowledged the need to address inventory management issues and expressed confidence in future revenue growth despite current challenges [26][27] Question: Delay in Q3 earnings release - The delay was attributed to the new leadership team wanting to ensure accuracy in reporting [30] Question: Expectations for Q4 sales and margins - Management expects an improvement in sales for the full year compared to 2024, with a positive outlook for Q4 [35] Question: Indirect costs and SG&A expenses - Management indicated that the current SG&A expenses reflect ongoing investments in leadership and operations, with some one-time costs not expected to recur [58] Question: Future margin expectations - Management refrained from providing specific guidance for 2026 but indicated a target of 30% as a floor for margins, with aspirations for higher levels in the future [64][65]

Core Insights - Solésence, Inc. is undergoing a strategic transformation aimed at enhancing innovation, product quality, and operational efficiency while expanding its market reach in skin care, sun care, and color cosmetics [3][6]. Financial Performance - Revenue for Q3 2025 was $14.5 million, a decrease from $16.9 million in Q3 2024, reflecting a year-over-year decline of approximately 14% [9]. - Gross margin for Q3 2025 was 23%, down from 36% in the same quarter of 2024, indicating a significant reduction in profitability [9]. - Gross profit for Q3 2025 was $3.4 million, compared to $6.1 million in Q3 2024, marking a decline of about 44% [9]. - The company reported a net loss of $1.1 million for Q3 2025, contrasting with a net income of $3.0 million in Q3 2024 [9]. Operational Highlights - The company has consolidated its manufacturing facilities from three to two, aiming to improve operational efficiencies [9]. - Recent structural changes include unifying R&D and Quality teams and increasing production automation to enhance productivity [6][9]. - The appointment of Laura Riffer as CFO and the promotion of Kevin Cureton to CEO are part of the leadership changes to support the company's strategic initiatives [8]. Strategic Initiatives - Solésence is focused on driving future innovation and growth through key leadership changes and operational restructuring [3][8]. - The company aims to solidify its position as a long-term partner for brand partners by delivering high-quality products efficiently [6].

Core Insights - Solésence, Inc. has appointed Yoana Dvorzsak as Vice President of Innovation and Product Integrity to enhance innovation and operational excellence during its growth phase [1][4] - Dvorzsak's leadership will unify various departments, including research and development, regulatory, and quality operations, to improve efficiency and maintain high product standards [2][5] - Dvorzsak has been recognized as a 2025 CEW Innovator Honoree, highlighting her contributions to innovation in the beauty industry [3] Company Strategy - The newly unified group under Dvorzsak aims to create a seamless connection between innovation and execution, enabling faster and smarter development of beauty solutions [5] - The company emphasizes its commitment to product excellence and development, aiming to exceed client expectations with a diverse range of products [4] Background Information - Solésence, Inc. is recognized for its scientifically-driven health care solutions across beauty and life science categories, focusing on innovation, inclusivity, and effective sun protection [6]

Core Insights - Solésence, Inc. will report its third quarter 2025 results on November 11, 2025, before market opening [1] - The company will host a conference call and webcast on the same date to discuss the results [1] Conference Call Details - The conference call is scheduled for November 11, 2025, at 7:30 a.m. CDT, 8:30 a.m. EDT [2] - Key speakers will include Kevin Cureton (President & CEO), Laura Riffner (Chief Financial Officer), and Jess Jankowski (Board Advisor) [2] - Access to the call can be obtained through a registration link, which provides a personalized PIN for dial-in [2][3] Company Overview - Solésence, Inc. is recognized for its scientifically-driven health care solutions in beauty and life science categories [4] - The company focuses on innovation, inclusivity, and the science of beautiful skin, particularly in mineral-based sun protection [4] - Solésence aims to integrate protection, prevention, and treatment technologies into daily use products, enhancing skin health and self-care [4]

Core Insights - SRK Fund I, LP achieved a return of 46.94% in the first half of 2025, significantly outperforming the S&P 500 and Russell 2000, which returned 6.20% and -1.78% respectively [2][3] - Since its inception on May 1, 2018, the fund has appreciated 1200.66%, compared to 162.30% for the S&P 500 and 55.46% for the Russell 2000 [2][3] - The fund manager emphasizes the importance of long-term performance evaluation rather than short-term results [4] Portfolio Updates - **Innovative Solutions & Support (ISSC)**: Contributed significantly to the fund's performance with a 104% revenue increase and Ebitda margins reaching 35%. The company is expanding through strategic acquisitions and has increased its manufacturing capacity [6][7] - **ImmuCell Corporation (ICCC)**: Reported record first-quarter results with gross margins expanding to 42%. The company is targeting further growth and has received investigational use authorization for its product Re-Tain, which is pending FDA approval [8][9][10] - **Soléance (SLSN)**: Experienced a 53% revenue growth in the first half of the year despite lower margins due to onboarding costs. The company resolved litigation issues and uplisted to Nasdaq, which positively impacted its stock price [11] - **Sanuwave Health, Inc. (SNWV)**: Achieved 51% revenue growth without a national sales presence. The company has now established a national sales force and is pursuing debt refinancing options [12][13] Closing Thoughts - The strong returns in the first half of the year are viewed as a recovery from the previous year's poor performance. The fund has increased its cash reserves to capitalize on future investment opportunities [14]

Leadership Changes - Solésence, Inc. has announced the promotion of Kevin Cureton to President and Chief Executive Officer, with Laura Riffner appointed as Chief Financial Officer, and Jess Jankowski transitioning to Board Advisor [1][2] - These leadership changes are part of a broader strategic transformation aimed at enhancing the company's operational efficiency and market presence [2] Company Rebranding and Growth - In the first half of 2025, Solésence rebranded from Nanophase Technologies, reflecting the success of its Beauty Science platform and reinforcing its mission to deliver joy through innovation and inclusivity [2] - The company uplisted to Nasdaq on April 8, 2025, which has increased visibility with the investment community and is expected to drive greater shareholder value [2] Strategic Vision and Future Plans - The leadership transition is seen as a pivotal moment for Solésence, with a focus on delivering high-performance skin care, sun care, and color cosmetics products to consumers worldwide [2][3] - Kevin Cureton's leadership is expected to foster continued growth and innovation, while Laura Riffner's extensive financial experience will enhance operational excellence [3] Executive Experience - Laura Riffner brings over 35 years of experience in finance management and strategic planning, having previously served as CFO at Nagase America and Paxton/Patterson, where she improved operational efficiencies and financial forecasting [3][4]

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Solésence, Inc.'s unaudited consolidated condensed financial statements for Q2 2025, detailing financial position, operational results, and cash flows [Consolidated Balance Sheets (Unaudited Consolidated Condensed)](index=4&type=section&id=Consolidated%20Balance%20Sheets%20%28Unaudited%20Consolidated%20Condensed%29) Metric | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $59,956 | $50,002 | | Total current assets | $38,770 | $29,348 | | Cash | $4,108 | $1,409 | | Trade accounts receivable, net | $11,049 | $4,869 | | Inventories, net | $19,832 | $20,267 | | Total liabilities | $41,768 | $35,056 | | Total current liabilities | $22,536 | $25,773 | | Total stockholders' equity | $18,188 | $14,946 | - Total assets increased by **$9,954 thousand (19.9%)** from December 31, 2024, to June 30, 2025, driven by increases in cash and trade accounts receivable[8](index=8&type=chunk) - Total stockholders' equity increased by **$3,242 thousand (21.7%)** from December 31, 2024, to June 30, 2025[8](index=8&type=chunk) [Consolidated Statements of Operations (Unaudited Consolidated Condensed)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20%28Unaudited%20Consolidated%20Condensed%29) Metric | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenue | $20,359 | $13,046 | $34,984 | $22,914 | | Product revenue | $20,261 | $12,923 | $34,836 | $22,694 | | Gross profit | $5,877 | $3,740 | $9,259 | $7,320 | | Net income | $2,667 | $856 | $2,747 | $1,747 | | Net income per share-basic | $0.04 | $0.02 | $0.04 | $0.03 | | Net income per share-diluted | $0.04 | $0.01 | $0.04 | $0.03 | - Total revenue increased by **56.1%** for the three months ended June 30, 2025, compared to the same period in 2024, and by **52.7%** for the six months ended June 30, 2025, compared to the same period in 2024[10](index=10&type=chunk) - Net income for the three months ended June 30, 2025, was **$2,667 thousand**, a significant increase from **$856 thousand** in the prior year, partly due to **$1,234 thousand** in other income from the Employee Retention Credit[10](index=10&type=chunk)[53](index=53&type=chunk) [Consolidated Statements of Shareholders' Equity (Unaudited Consolidated Condensed)](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity%20%28Unaudited%20Consolidated%20Condensed%29) Metric | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Total Stockholders' Equity | $18,188 | $14,946 | | Common Stock Shares Outstanding | 70,481,945 | 70,103,279 | | Additional Paid-in Capital | $115,165 | $114,674 | | Accumulated Deficit | $(97,681) | $(100,428) | - The accumulated deficit decreased from **$(100,428) thousand** at December 31, 2024, to **$(97,681) thousand** at June 30, 2025, reflecting net income generated during the period[13](index=13&type=chunk) - Issuance of shares and stock option exercises contributed **$245 thousand** to additional paid-in capital and common stock for the three months ended June 30, 2025[13](index=13&type=chunk) [Consolidated Statements of Cash Flows (Unaudited Consolidated Condensed)](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%20Consolidated%20Condensed%29) Cash Flow Activity | Cash Flow Activity | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(7,875) | $(4,420) | | Net cash used in investing activities | $(1,275) | $(562) | | Net cash provided by financing activities | $11,849 | $5,618 | | Total cash at period end | $4,108 | $2,358 | - Net cash used in operating activities increased to **$(7,875) thousand** for the six months ended June 30, 2025, primarily due to increased accounts receivable and decreased deferred revenue[15](index=15&type=chunk)[71](index=71&type=chunk) - Net cash provided by financing activities significantly increased to **$11,849 thousand** for the six months ended June 30, 2025, mainly due to increased use of debt, including proceeds from related party lines of credit[15](index=15&type=chunk)[71](index=71&type=chunk) [Notes to Unaudited Consolidated Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Condensed%20Financial%20Statements) [(1) Basis of Presentation](index=8&type=section&id=%281%29%20Basis%20of%20Presentation) Outlines the basis for preparing the unaudited consolidated condensed interim financial statements - The unaudited consolidated condensed interim financial statements include Solésence, Inc. and its wholly-owned subsidiary, Solésence, LLC, reflecting normal recurring adjustments[16](index=16&type=chunk) - Operating results for the interim periods are not necessarily indicative of the full year ending December 31, 2025[16](index=16&type=chunk) [(2) Description of Business](index=8&type=section&id=%282%29%20Description%20of%20Business) Describes Solésence, Inc.'s business, focusing on beauty and life-science markets and recent Nasdaq uplisting - **Solésence, Inc.** is a science-driven company focused on beauty- and life-science markets, with skin health and medical diagnostics comprising the majority of its business[18](index=18&type=chunk) - The company offers engineered materials, formulation development, and commercial manufacturing, utilizing proprietary Active Stress Defense™ Technology for personal care products, including sunscreens and prestige skin care/cosmetics[18](index=18&type=chunk)[20](index=20&type=chunk) - **Solésence's** securities were uplisted to **Nasdaq** under the symbol **SLSN** on **April 8, 2025**, expanding its reach within foreign markets[21](index=21&type=chunk) [(3) Revenues and Other Income](index=9&type=section&id=%283%29%20Revenues%20and%20Other%20Income) Details revenue recognition policies, contract balances, and other income sources - Revenue from goods is recognized when control is transferred to customers, typically at the shipping point[24](index=24&type=chunk) Contract Balance | Contract Balance | December 31, 2023 (in thousands) | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :----------------- | :------------------------------- | :------------------------------- | :--------------------------- | | Accounts Receivable | $3,467 | $4,869 | $11,049 | | Contract Liabilities | $2,353 | $5,571 | $2,169 | - Other revenue, primarily from laboratory tests, technology license fees, and paid development projects, decreased for both the three and six months ended June 30, 2025, compared to 2024[29](index=29&type=chunk) [(4) Earnings per Share](index=10&type=section&id=%284%29%20Earnings%20per%20Share) Provides calculations for basic and diluted earnings per common share Metric | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (in thousands) | $2,667 | $856 | $2,747 | $1,747 | | Weighted average basic shares outstanding | 70,200,039 | 56,674,170 | 70,151,928 | 54,675,011 | | Basic earnings per common share | $0.04 | $0.02 | $0.04 | $0.03 | | Diluted earnings per common share | $0.04 | $0.01 | $0.04 | $0.03 | - The weighted average number of basic common shares outstanding increased significantly year-over-year, reflecting share issuances and stock option exercises[13](index=13&type=chunk)[31](index=31&type=chunk) [(5) Financial Instruments](index=12&type=section&id=%285%29%20Financial%20Instruments) Discusses the fair value of financial instruments, including cash, receivables, and debt - The carrying values of cash, accounts receivable (net), accounts payable, and accrued expenses are considered reasonable estimates of their fair value due to their short-term nature[34](index=34&type=chunk) - The fair value of short-term and long-term debt approximates its carrying value based on comparisons to similar debt offerings[34](index=34&type=chunk) [(6) Related Party Notes and Lines of Credit](index=12&type=section&id=%286%29%20Related%20Party%20Notes%20and%20Lines%20of%20Credit) Details related party debt facilities, borrowing capacities, and outstanding balances Lender | Lender | Rate at June 30, 2025 | Total Borrowing Capacity (June 30, 2025, in thousands) | Outstanding Borrowed Balance (June 30, 2025, in thousands) | Outstanding Borrowed Balance (Dec 31, 2024, in thousands) | | :-------------------- | :-------------------- | :------------------------------------------------------- | :--------------------------------------------------------- | :--------------------------------------------------------- | | Beachcorp, LLC (A/R) | 8.25% | $12,000 | $6,099 | $0 | | Beachcorp, LLC (Inv) | 8.25% | $10,000 | $9,500 | $4,000 | | Strandler, LLC (Term) | 8.25% | $1,000 | $1,000 | $1,000 | - The A/R Revolver Facility with Beachcorp, LLC was expanded from **$8,000** to **$12,000** and its maturity extended to **April 30, 2027**, on May 27, 2025[36](index=36&type=chunk) - Related party interest expense for the three months ended June 30, 2025, was **$282 thousand**, up from **$181 thousand** in the prior year[39](index=39&type=chunk) [(7) Inventories, net](index=13&type=section&id=%287%29%20Inventories%2C%20net) Presents a breakdown of inventory components and changes over the period Inventory Component | Inventory Component | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------ | :----------------------------- | :------------------------------- | | Raw materials | $15,093 | $17,396 | | Finished goods | $7,179 | $4,858 | | Inventory reserve | $(2,440) | $(1,987) | | Total Inventories, net | $19,832 | $20,267 | - Net inventories decreased slightly from **$20,267 thousand** at December 31, 2024, to **$19,832 thousand** at June 30, 2025, with a notable increase in finished goods and a decrease in raw materials[40](index=40&type=chunk) [(8) Capital Stock](index=14&type=section&id=%288%29%20Capital%20Stock) Outlines the company's capital stock structure, including authorized and issued shares - As of June 30, 2025, the company had **24,088** authorized but unissued shares of preferred stock[42](index=42&type=chunk) - On June 20, 2024, **15,000 shares** of Series X Preferred Stock were converted into **15,000,000 shares** of Common Stock[43](index=43&type=chunk) [(9) Significant Customers](index=14&type=section&id=%289%29%20Significant%20Customers) Identifies major customers and their revenue contribution, highlighting customer concentration risks Customer | Customer | Product Category | % of Total Revenue (3 months ended June 30, 2025) | % of Total Revenue (3 months ended June 30, 2024) | % of Total Revenue (6 months ended June 30, 2025) | % of Total Revenue (6 months ended June 30, 2024) | | :--------- | :--------------- | :------------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | | 1 | Consumer Products | 33% | 33% | 23% | 34% | | 2 | Consumer Products | 27% | 0% | 19% | 0% | | 3 | Personal Care Ingredients | 13% | 13% | 12% | 14% | | Total | | 73% | 46% | 54% | 48% | - The top three customers accounted for **73%** of total revenue for the three months ended June 30, 2025, indicating significant customer concentration[45](index=45&type=chunk) - Exclusive supply agreements with **BASF Corporation** include contingencies that could result in the sale of production equipment to **BASF** if performance requirements are not met, potentially leading to a significant loss of revenue[45](index=45&type=chunk)[46](index=46&type=chunk) [(10) Business Segmentation and Geographical Distribution](index=14&type=section&id=%2810%29%20Business%20Segmentation%20and%20Geographical%20Distribution) Describes the company's single business segment and geographical revenue distribution - The Company operates as a single business segment, with performance assessed based on net income and gross profit[47](index=47&type=chunk)[48](index=48&type=chunk) Product Category | Product Category | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Consumer Products | $17,544 | $11,200 | $30,426 | $19,304 | | Personal Care Ingredients | $2,687 | $1,745 | $4,061 | $3,121 | | Advanced Materials | $128 | $101 | $497 | $489 | | Total Sales | $20,359 | $13,046 | $34,984 | $22,914 | - Revenue from international sources significantly increased to **$2,519 thousand** for the three months ended June 30, 2025, from **$478 thousand** in the prior year, with a substantial portion from the United Kingdom[49](index=49&type=chunk) [(11) Contingencies](index=16&type=section&id=%2811%29%20Contingencies) Details significant contingent events, including the Employee Retention Credit and related reserve - In June 2025, the Company received a payment of **$1,729 thousand** from the U.S. Department of the Treasury under the Employee Retention Credit (ERC) program, along with **$272 thousand** in related interest[51](index=51&type=chunk) - The Company recognized **$1,234 thousand** of the ERC as other income and **$194 thousand** in interest income, creating a **$572 thousand** reserve for the discrepancy, which is included in accrued expenses as a contingent liability[53](index=53&type=chunk)[54](index=54&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion of Solésence, Inc.'s Q2 2025 financial performance, condition, liquidity, and future outlook [Overview](index=18&type=section&id=Overview) Provides an overview of the company's rebranding, Nasdaq uplisting, and strategic focus on skin health solutions - **Nanophase Technologies Corporation** rebranded as **Solésence, Inc.** on **March 7, 2025**, and its stock uplisted to **Nasdaq** under the symbol **SLSN** on **April 8, 2025**[55](index=55&type=chunk)[56](index=56&type=chunk) - The company's primary strategic focus is on skin health solutions, particularly consumer products, leveraging integrated patented and proprietary technologies for engineered materials, formulation, and manufacturing[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Analyzes Solésence, Inc.'s revenue, cost of revenue, and operating expenses for the reporting periods Metric | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenue | $20,359 | $13,046 | $34,984 | $22,914 | | Product revenue | $20,261 | $12,923 | $34,836 | $22,694 | | Cost of revenue | $14,482 | $9,306 | $25,725 | $15,594 | | Research and development expense | $955 | $864 | $1,973 | $1,776 | | Selling, general and administrative expense | $3,012 | $1,829 | $5,120 | $3,388 | | Other income, net | $1,234 | $0 | $1,234 | $0 | - Total revenue increased by **56.1%** and **52.7%** for the three and six months ended June 30, 2025, respectively, primarily driven by higher sales in consumer products and personal care ingredients[60](index=60&type=chunk)[62](index=62&type=chunk) - Cost of revenue increased due to higher volume, manufacturing operating inefficiencies, and facilities improvements, impacting gross margin percentage despite efforts to pass through costs[64](index=64&type=chunk)[65](index=65&type=chunk) - Selling, general and administrative expense increased due to higher allowance for credit loss, legal costs, NASDAQ uplisting costs, and increased employee-related costs[68](index=68&type=chunk) [Inflation](index=20&type=section&id=Inflation) Discusses the impact of inflation on operational costs and the company's mitigation strategies - Inflation has had an incremental impact on operational costs, with supplier price increases and wage/benefit inflation posing potential material effects if not passed through to customers[70](index=70&type=chunk) - The company is actively increasing pricing where possible and adjusting pricing to market conditions and contract limitations[70](index=70&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) Examines the company's cash flows, liquidity position, and future capital requirements Cash Flow Metric | Cash Flow Metric | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cash (used in) provided by operating activities | $(7,875) | $(4,420) | | Net cash used in investing activities | $(1,275) | $(562) | | Net cash provided by financing activities | $11,849 | $5,618 | | Total cash at period end | $4,108 | $2,358 | - Net cash used in operating activities increased due to higher accounts receivable and decreased accounts payable and deferred revenue[71](index=71&type=chunk) - Future capital requirements for 2025 are estimated between **$1 million** and **$3 million** for capital equipment, to be funded by operating profit, existing loans, and potential new debt financing[72](index=72&type=chunk) [Additional Consideration](index=21&type=section&id=Additional%20Consideration) Highlights federal and state net operating loss carryforwards and their potential impact - The company has federal net operating loss carryforwards of approximately **$42 million** as of December 31, 2024, with **$36 million** expiring between 2025 and 2037, and **$6.8 million** generated after January 1, 2018, which do not expire[73](index=73&type=chunk) - Illinois net loss deduction carryforwards totaled approximately **$18.2 million** as of December 31, 2024, expiring between 2030 and 2043[73](index=73&type=chunk) [Off-Balance Sheet Arrangements](index=21&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of special-purpose or off-balance sheet entities - The company has not created, nor is it party to, any special-purpose or off-balance sheet entities for capital raising, debt, or business operations[74](index=74&type=chunk) [Safe Harbor Provision](index=22&type=section&id=Safe%20Harbor%20Provision) Warns about forward-looking statements and associated risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[75](index=75&type=chunk) - Key risks include consistent profitability, customer dependence, terms of supply agreements (e.g., BASF), ability to obtain working capital, material costs, uncertain demand, manufacturing capacity, marketing experience, competitive products, patent protection, regulatory changes, business interruptions, and litigation[75](index=75&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Solésence, Inc. is not required to provide market risk disclosures - Disclosure is not required for a smaller reporting company[76](index=76&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the company's disclosure controls and internal control over financial reporting, affirming their effectiveness [Disclosure controls](index=22&type=section&id=Disclosure%20controls) Management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective at providing reasonable assurance as of June 30, 2025[77](index=77&type=chunk) [Internal control over financial reporting](index=22&type=section&id=Internal%20control%20over%20financial%20reporting) Management's confirmation of no material changes in internal control over financial reporting - Management confirmed no material changes in the company's internal control over financial reporting during the period covered by the report[78](index=78&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) Solésence, Inc. reported no legal proceedings during the quarter ended June 30, 2025 - There are no legal proceedings to report[80](index=80&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Solésence, Inc. is not required to provide a separate discussion of risk factors - Disclosure is not required for a smaller reporting company[81](index=81&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Solésence, Inc. reported no unregistered sales of equity securities or use of proceeds - There were no unregistered sales of equity securities and use of proceeds to report[82](index=82&type=chunk) [Item 3. Defaults Upon Senior Securities](index=23&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Solésence, Inc. reported no defaults upon senior securities during the quarter ended June 30, 2025 - There were no defaults upon senior securities to report[83](index=83&type=chunk) [Item 4. Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to Solésence, Inc.'s operations - Mine safety disclosures are not applicable[84](index=84&type=chunk) [Item 5. Other Information](index=23&type=section&id=Item%205.%20Other%20Information) Solésence, Inc. reported no other information requiring disclosure in this section - There is no other information to report[85](index=85&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including certifications and XBRL formatted financial statements - Exhibits include certifications from the Chief Executive Officer and Principal Financial Officer (**31.1, 31.2, 32**)[87](index=87&type=chunk) - XBRL formatted financial statements (Balance Sheets, Statements of Operations, Statements of Shareholders Equity, Statements of Cash Flows, and Notes) are included as **Exhibit 101**[87](index=87&type=chunk) SIGNATURES - The report was duly signed on **August 14, 2025**, by **Jess A. Jankowski**, President and Chief Executive Officer (also serving as principal executive officer and principal financial officer) of Solésence, Inc[89](index=89&type=chunk)[91](index=91&type=chunk)

Financial Data and Key Metrics Changes - Revenue for the second quarter was $20.4 million, representing a 56% increase year over year, marking a record quarter for the company [8][10] - Gross profit increased by 55% to $5.9 million, with a gross profit margin of 29% for both periods, expanding by six percentage points from the previous year [10] - Net income for the second quarter was $2.7 million, compared to $0.9 million for the same period in 2024, benefiting from approximately $1.2 million in net credits from the federal government's employee retention credit program [11] Business Line Data and Key Metrics Changes - Shipment volume increased by 102% and production volume increased by 127% compared to the year ago period, indicating strong operational performance [16] - The company successfully resolved production issues with a new brand partner, leading to continued new orders from that account [16] Market Data and Key Metrics Changes - The company anticipates demand to slow in 2025 due to tariffs affecting global purchasing decisions and consumer buying habits, but still projects a record revenue year [20] - Current shipped and open orders are valued at over $60 million, compared to $50 million in 2024, indicating strong demand trends [22] Company Strategy and Development Direction - The company uplisted its common shares on NASDAQ, enhancing visibility and liquidity, and was added to the Russell 3000 and Russell 2000 indices [6][7] - The company is focused on leveraging patented technology and specialized formulations to maintain a competitive edge in the beauty market [23][24] - Financial flexibility was enhanced by amending loan agreements to increase borrowing capacity from $14.2 million to $23 million, allowing for better support of growth initiatives [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term prospects despite anticipated near-term demand headwinds due to macroeconomic conditions [22][37] - The company is committed to continuous innovation and improving operational efficiencies to drive stronger EBITDA performance in the second half of the year [25][37] Other Important Information - The company showcased new products at Cosmoprof North America, highlighting its commitment to innovation and market leadership [12][13] - A search for a new Chief Financial Officer is ongoing, with expectations to announce a candidate soon [27] Q&A Session Summary Question: Insights on profit margins and scaling challenges - Management indicated that improvements in manufacturing efficiency and better utilization of production lines are expected to enhance gross profit margins in the coming quarters [30][34] Question: Further details on operational improvements - Management elaborated on the implementation of process improvements to achieve first-time quality, which is anticipated to lower costs and improve efficiency [33][34]