Solésence Second Quarter 2025 Earnings Release [Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) Solésence reported record Q2 2025 revenue of **$20.4 million** (+**56%** YoY) and strong net income, enhancing financial flexibility [Key Accomplishments](index=1&type=section&id=Key%20Accomplishments) Strong commercial execution, Russell Index inclusion, and enhanced financial flexibility marked key accomplishments - Joined the broad-market Russell 3000® and small-cap Russell 2000® Indexes[7](index=7&type=chunk) - Management highlighted effective commercial execution and consistent on-time delivery to partners as key drivers for the quarter's performance[2](index=2&type=chunk) - Amended loan agreements to fuel growth initiatives, enhancing financial flexibility by increasing borrowing capacity[5](index=5&type=chunk)[7](index=7&type=chunk) [Q2 2025 Financial Performance](index=1&type=section&id=Q2%202025%20Financial%20Performance) Q2 2025 revenue grew **56%** to **$20.4 million**, with net income of **$2.7 million** aided by ERC Q2 2025 vs Q2 2024 Financials | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $20.4M | $13.0M | +56% | | Gross Profit | $5.9M | $3.7M | +59% | | Gross Margin | 29% | 29% | Stable | | Net Income | $2.7M | $0.9M | +200% | - Net income for Q2 2025 included an Employee Retention Credit (ERC) net receipt of approximately **$1.2 million** plus related interest[8](index=8&type=chunk) [Q2 2025 Operational Performance](index=1&type=section&id=Q2%202025%20Operational%20Performance) Record operational volumes (+**102%** shipment) supported by expanded debt facilities to **$23.0 million** Year-over-Year Operational Volume Growth | Metric | YoY Change | | :--- | :--- | | Shipment Volume | +102% | | Production Volume | +127% | - Expanded debt facilities from **$14.2 million** to a maximum borrowing capacity of **$23.0 million** and extended the maturity date to April 30, 2027[8](index=8&type=chunk) [Financial Statements](index=3&type=section&id=Financial%20Statements) Unaudited consolidated financial statements detail Q2 2025 performance, including Balance Sheet, Income Statement, and Adjusted EBITDA [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets reached **$60.0 million** and equity **$18.2 million** as of June 30, 2025, with increased liabilities Balance Sheet Summary (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $38,770 | $29,348 | | **Total Assets** | **$59,956** | **$50,002** | | Total Current Liabilities | $33,036 | $25,773 | | **Total Liabilities** | $41,768 | $35,056 | | **Total Stockholders' Equity** | **$18,188** | **$14,946** | [Consolidated Statements of Operations (GAAP)](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20%28GAAP%29) Q2 2025 net revenue was **$20.4 million** with net income of **$2.7 million** (**$0.04** EPS), significantly up YoY Q2 Statement of Operations (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Revenue | $20,359 | $13,046 | | Gross Profit | $5,877 | $3,740 | | Income from Operations | $1,910 | $1,047 | | **Net Income** | **$2,667** | **$856** | | **Diluted EPS** | **$0.04** | **$0.01** | [Non-GAAP Reconciliation (Adjusted EBITDA)](index=4&type=section&id=Non-GAAP%20Reconciliation%20%28Adjusted%20EBITDA%29) Q2 2025 Adjusted EBITDA significantly increased to **$3.5 million**, including **$1.2 million** from the Employee Retention Credit Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income | $2,667 | $856 | | Add: Interest, net | $87 | $191 | | Add: Depreciation/Amortization | $225 | $234 | | Add: Non-Cash Equity Comp. | $120 | $157 | | Add: Provision for Income Taxes | $390 | $0 | | **Adjusted EBITDA** | **$3,489** | **$1,438** | - The Q2 2025 Adjusted EBITDA calculation includes **$1,234 thousand** in other cash income from the Employee Retention Credit (ERC)[21](index=21&type=chunk) [Conference Call Information](index=1&type=section&id=Conference%20Call%20Information) A conference call on July 31, 2025, will discuss results, featuring CEO and COO, with webcast and dial-in access - The conference call is scheduled for Thursday, July 31, 2025, at 4:00 p.m. CDT / 5:00 p.m. EDT[6](index=6&type=chunk) - Participants include President and CEO Jess Jankowski and COO Kevin Cureton[6](index=6&type=chunk) - Access details, including webcast and dial-in registration links, are provided in the release[6](index=6&type=chunk)[9](index=9&type=chunk) [Company Information & Disclosures](index=2&type=section&id=Company%20Information%20%26%20Disclosures) This section details Solésence's business, non-GAAP measure usage, and forward-looking statements disclaimer - Solésence defines itself as a leader in scientifically-driven health care solutions, specializing in mineral-based sun protection[11](index=11&type=chunk) - The company explains its use of non-GAAP financial measures to provide supplemental information for evaluating performance across reporting periods[10](index=10&type=chunk) - The release contains forward-looking statements subject to risks and uncertainties, as detailed in the company's Form 10-K[12](index=12&type=chunk)

Core Insights - Solésence, Inc. reported a strong financial performance for Q2 2025, with a revenue increase of 56% year-over-year, reaching a record $20.4 million compared to $13.0 million in Q2 2024 [10] - The company emphasized its commitment to innovation and effective commercial execution, which has attracted leading brands to partner with them [2][5] - Solésence expanded its debt facilities to enhance financial flexibility, increasing borrowing capacity from $14.2 million to $23.0 million, and extending loan maturity dates [10] Financial Results - Revenue for Q2 2025 was $20.4 million, a 56% increase from $13.0 million in Q2 2024 [10] - Gross profit for the quarter was $5.9 million, up from $3.7 million in the same period last year [10] - Net income for Q2 2025 was $2.7 million, compared to $0.9 million in Q2 2024, which included an Employee Retention Credit net receipt of approximately $1.2 million [10] Operational Highlights - Shipment volume increased by 102% year-over-year, while production volume rose by 127% year-over-year [10] - The company improved its gross margin sequentially from the first quarter, maintaining a gross margin of 29% [10][5] - Solésence achieved record unit volume during its peak demand season, reflecting effective operational management [5] Strategic Initiatives - The company amended its loan agreements to support long-term growth initiatives, enhancing its financial flexibility [10] - Solésence's focus on innovation is central to its value proposition, aiming to equip partners with differentiated consumer products [2]

Core Insights - Solésence, Inc. will report its second quarter 2025 results on July 31, 2025, after market close [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 July 31, 2025, at 4:00 p.m. CDT, 5:00 p.m. EDT [2] - Speakers will include Jess Jankowski, President & CEO, and Kevin Cureton, Chief Operating Officer [2] - Registration is required to receive the dial-in number and personalized PIN for the call [2][3] Company Overview - Solésence, Inc. is a leader in 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 integrates protection, prevention, and treatment technologies into daily use products, enhancing skin health solutions [4]

Core Points - Solésence, Inc. will be added to the Russell 3000® and Russell 2000® Indexes effective June 30, 2025, enhancing its visibility to institutional investors [1][3] - The Russell US indexes include the 4,000 largest US stocks ranked by market capitalization as of April 30, with membership lasting for one year [2] - Approximately $10.6 trillion in assets are benchmarked against the Russell US indexes, indicating their significance in the investment community [3] Company Overview - Solésence, Inc. specializes in scientifically-driven health care solutions in beauty and life sciences, focusing on innovative skin health products [5] - The company aims to redefine mineral-based sun protection by emphasizing transparency, effectiveness, and aesthetics [5] - Solésence integrates protection, prevention, and treatment technologies into daily use products, promoting self-care and unique product claims [5] Industry Context - FTSE Russell, the provider of the Russell indexes, is a global leader in index benchmarking, covering 98% of the investable market globally with approximately $18.1 trillion benchmarked to its indexes [6] - The Russell indexes are widely utilized by investment managers and institutional investors for index funds and as benchmarks for active investment strategies [3][6]

PART I – FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Solesence, Inc.'s Q1 2025 financial statements show increased assets and liabilities, significant revenue growth, but a sharp decline in net income due to higher costs [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$57.0 million** by March 31, 2025, driven by higher receivables and inventory, with total liabilities also rising due to increased credit lines Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $35,904 | $29,348 | | Trade accounts receivable, net | $9,085 | $4,869 | | Inventories, net | $21,912 | $20,267 | | **Total Assets** | **$57,016** | **$50,002** | | **Total Current Liabilities** | $32,876 | $25,773 | | Line of credit – accounts receivable | $6,292 | $0 | | Line of credit – inventory | $5,200 | $4,000 | | **Total Liabilities** | $41,860 | $35,056 | | **Total Stockholders' Equity** | **$15,156** | **$14,946** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 2025 saw total revenue increase by **48.2%** to **$14.6 million**, but net income sharply declined to **$80 thousand** due to higher cost of revenue and operating expenses Q1 2025 vs. Q1 2024 Performance (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$14,625** | **$9,868** | **+48.2%** | | Product Revenue | $14,575 | $9,772 | +49.2% | | Cost of Revenue | $11,243 | $6,288 | +78.8% | | **Gross Profit** | **$3,382** | **$3,580** | **-5.5%** | | Net Income from Operations | $256 | $1,111 | -76.9% | | **Net Income** | **$80** | **$893** | **-91.0%** | | **Net Income per Share-diluted** | **$0.00** | **$0.02** | **-100.0%** | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity slightly increased to **$15.16 million** by March 31, 2025, primarily due to **$80 thousand** net income and **$127 thousand** stock-based compensation - For the three months ended March 31, 2025, the change in stockholders' equity was driven by net income of **$80 thousand** and stock-based compensation of **$127 thousand**[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2025 saw **$7.2 million** net cash used in operations, offset by **$7.5 million** from financing, resulting in a **$408 thousand** cash increase Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,221) | $(3,855) | | Net cash used in investing activities | $133 | $(85) | | Net cash provided by financing activities | $7,496 | $4,236 | | **Increase in cash** | **$408** | **$296** | | **Cash at end of period** | **$1,817** | **$2,018** | [Notes to Unaudited Consolidated Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Condensed%20Financial%20Statements) Notes detail the company's skin health focus, revenue recognition, customer concentration, reliance on related-party debt maturing in October 2025, and revenue by product category - The company is science-driven, focusing on skin health and medical diagnostics markets, utilizing proprietary technologies like Active Stress Defense™ for ingredients and prestige products[17](index=17&type=chunk)[19](index=19&type=chunk) - The company relies on credit facilities from Beachcorp, LLC and Strandler, LLC, affiliates of a majority shareholder, with loan agreements expiring on **October 1, 2025**[37](index=37&type=chunk) - For Q1 2025, three significant customers accounted for **42%** of total revenue, a decrease from **61%** in Q1 2024, indicating reduced customer concentration[43](index=43&type=chunk)[44](index=44&type=chunk) Revenue by Product Category (in thousands) | Product Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Consumer Products | $12,882 | $8,104 | | Personal Care Ingredients | $1,373 | $1,376 | | Advanced Materials | $370 | $388 | | **Total Sales** | **$14,625** | **$9,868** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's rebranding, strategic shift to consumer products, Q1 2025 revenue growth, gross margin impact from higher costs, and reliance on debt for funding - On **March 7, 2025**, the company rebranded from Nanophase Technologies Corporation to Solesence, Inc. and uplisted to Nasdaq under ticker SLSN on **April 8, 2025**[50](index=50&type=chunk) - The company's strategic focus is on consumer products, which is now the major driver of growth due to strong market demand and technological advantages[53](index=53&type=chunk) - Product revenue increased to **$14.6 million** in Q1 2025 from **$9.8 million** in Q1 2024, primarily due to higher sales in the consumer products category[57](index=57&type=chunk) - Cost of revenue increased significantly in Q1 2025 due to higher volume, manufacturing inefficiencies, and facility improvements, negatively impacting gross margin percentage[59](index=59&type=chunk) - The company's primary operational focus is on increasing manufacturing throughput and reducing controllable variable manufacturing costs to improve margins as revenue scales[60](index=60&type=chunk) - Cash used in operations for Q1 2025 was primarily due to increased accounts receivable and inventory, with funding needs met through debt and expected capital spending between **$2 million** and **$4 million** for 2025[67](index=67&type=chunk)[68](index=68&type=chunk) [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, Solesence, Inc. is not required to provide these disclosures - Disclosure is not required for a smaller reporting company[72](index=72&type=chunk) [Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the company's disclosure controls and procedures, concluding they were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective[73](index=73&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[74](index=74&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[77](index=77&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Solesence, Inc. is not required to provide this information - Not required for a smaller reporting company[78](index=78&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None[79](index=79&type=chunk) [Defaults Upon Senior Securities](index=24&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[80](index=80&type=chunk) [Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[81](index=81&type=chunk) [Other Information](index=24&type=section&id=Item%205.%20Other%20Information) The company reported no other information - None[82](index=82&type=chunk) [Exhibits](index=25&type=section&id=Item%206.%20Exhibits) The report includes certifications from the Chief Executive Officer and Principal Financial Officer, as well as XBRL data files for the financial statements - Exhibits filed include CEO and PFO certifications (Exhibits 31.1, 31.2, 32) and XBRL formatted financial statements (Exhibit 101)[85](index=85&type=chunk)

[Executive Summary & Business Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Business%20Highlights) Solésence achieved record Q1 2025 revenue, driven by new partnerships, despite temporary margin compression, with strong future order visibility and Nasdaq uplisting - Record revenue was fueled by strong sales across consumer products and large customer orders, including a new product line with a key new brand partner[2](index=2&type=chunk) - One-time start-up costs associated with a new partner launch impacted Q1 gross margins, but the company anticipates substantial margin improvement as operations scale[2](index=2&type=chunk) - The company anticipates continued sequential revenue growth, citing current shipped and open orders in excess of **$45 million**[2](index=2&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) Solésence reported record Q1 2025 revenue of **$14.6 million** (+48% YoY), but gross profit and net income declined significantly due to higher start-up costs Q1 2025 Key Financial Metrics (vs. Q1 2024) | Financial Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | **Net Revenue** | $14.6 million | $9.9 million | +48% | | **Gross Profit** | $3.3 million | $3.6 million | -8.3% | | **Gross Margin** | 23% | 36% | -13 pts | | **Net Income** | $0.0 million (breakeven) | $0.9 million | -100% | | **Adjusted EBITDA** | $0.6 million | $1.5 million | -60% | [Consolidated Statements of Operations](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Q1 2025 net revenue increased 48% to **$14.6 million**, but a 79.9% surge in cost of revenue reduced gross profit and led to breakeven net income Q1 2025 vs Q1 2024 Statement of Operations (in thousands) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net revenue | $14,625 | $9,868 | | Gross profit | $3,313 | $3,580 | | Income from operations | $256 | $1,111 | | Net income | $80 | $893 | | Net income per share-diluted | $0.00 | $0.02 | [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Total assets grew to **$57.0 million** as of March 31, 2025, driven by receivables and inventories, while total liabilities increased due to a new line of credit Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $35,904 | $29,348 | | **Total assets** | **$57,016** | **$50,002** | | Total current liabilities | $32,876 | $25,773 | | **Total liabilities** | **$41,860** | **$35,056** | | **Total stockholders' equity** | **$15,156** | **$14,946** | [Non-GAAP Financial Measures](index=2&type=section&id=Use%20of%20Non-GAAP%20Financial%20Information) Solésence uses non-GAAP measures like Adjusted EBITDA, which declined sharply to **$609 thousand** in Q1 2025 from **$1,505 thousand** in Q1 2024 - The company presents non-GAAP measures, believing they provide meaningful supplemental information to evaluate performance across reporting periods[10](index=10&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $80 | $893 | | **Adjusted EBITDA** | **$609** | **$1,505** | [Operational Highlights](index=1&type=section&id=First%20Quarter%202025%20Operational%20Highlights) Q1 2025 saw significant operational scaling with **95%** shipment and **120%** production volume increases, alongside expanded intellectual property with new patent allowances - Shipment volume increased by **95%** and production volume grew by **120%** year-over-year[7](index=7&type=chunk) - Intellectual property was expanded with patent allowances in Japan (Kleair™ technology), South Korea (plant-based antioxidant), and Mexico (skin health technology)[7](index=7&type=chunk) [Corporate Updates & Conference Call](index=1&type=section&id=Corporate%20Updates%20%26%20Conference%20Call) A key corporate update was the successful uplisting to Nasdaq under ticker **SLSN**, enhancing visibility, with a conference call scheduled for May 5, 2025 - The company successfully uplisted to the Nasdaq market under the new ticker symbol "**SLSN**"[6](index=6&type=chunk) - A conference call to discuss Q1 2025 financial results is scheduled for May 5, 2025, at 4:00 p.m. CDT[8](index=8&type=chunk)

Part I [Business Overview](index=5&type=section&id=Item%201.%20General) Solesence, Inc. is a science-driven skin health company strategically focused on its high-growth Consumer Products segment, leveraging patented technologies for innovative skincare solutions - On March 7, 2025, Nanophase Technologies Corporation rebranded as Solesence, Inc. to reflect its commitment to innovation in skin health. The stock ticker remains NANX[19](index=19&type=chunk) - The company's strategic focus has shifted to its Solesence consumer products, which are viewed as the primary driver for future growth, surpassing personal care ingredients in revenue[22](index=22&type=chunk)[24](index=24&type=chunk) - The company's Active Stress Defense™ technology platform, including Kleair™, is a key competitive advantage, enabling unique skin health products that protect against UVA/UVB, pollution, and blue light[37](index=37&type=chunk) - Solesence has received numerous industry awards for its innovative formulations, including multiple Cosmopack and Cosmetics & Toiletries Allē Awards between 2022 and 2025, highlighting its technological and formulation expertise[28](index=28&type=chunk) Revenue by Product Category (2023-2024) | Product Category | 2024 Revenue | 2023 Revenue | | :--- | :--- | :--- | | Consumer Products | $44.4M (85% of total) | $25.2M (68% of total) | | Personal Care Ingredients | $6.8M | $9.3M | | Advanced Materials | $1.1M | $2.8M | Top Customer Revenue Concentration (2024) | Customer Type | % of 2024 Total Revenue | | :--- | :--- | | Consumer Products Customer 1 | 32% | | Personal Care Ingredients (BASF) | 13% | | Consumer Products Customer 2 | 7% | [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, the company is not required to provide specific risk factor disclosures - Disclosure of Risk Factors is not required for a smaller reporting company[63](index=63&type=chunk) [Cybersecurity](index=14&type=section&id=Item%201C.%20Cybersecurity) The company employs a comprehensive cybersecurity strategy managed by an IT consultant with Board oversight, reporting no material incidents in 2024 - The company's cybersecurity strategy involves using antivirus software, VPNs, email security, and maintaining up-to-date software patches[66](index=66&type=chunk)[73](index=73&type=chunk) - Oversight is managed by an IT consultant who reports to senior management, with the Board of Directors having ultimate responsibility[67](index=67&type=chunk)[68](index=68&type=chunk) - The company is not aware of any material cybersecurity incidents in 2024 or any threats reasonably likely to materially affect its business[66](index=66&type=chunk) [Properties](index=14&type=section&id=Item%202.%20Properties) Solesence operates three ISO-certified and FDA cGMP-compliant leased facilities in the Chicago suburbs, providing sufficient capacity for anticipated growth through 2026 - The company leases three facilities in the Chicago area: Romeoville (HQ, R&D, manufacturing), Burr Ridge (manufacturing), and Bolingbrook (warehousing, manufacturing, assembly)[69](index=69&type=chunk) - All facilities are registered under ISO 9001, ISO 22716, and ISO 14001, and are compliant with FDA cGMP regulations for API and OTC drug manufacturing[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - The Bolingbrook lease extends to May 2032, while the Romeoville lease runs to January 2028. Management believes current facilities are sufficient for growth anticipated through 2025-2026[75](index=75&type=chunk)[76](index=76&type=chunk) [Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) A legal dispute with BASF Corporation regarding an exclusivity agreement was settled in April 2024, clarifying terms to allow Solesence to sell finished zinc oxide products - A legal dispute with BASF Corporation, initiated in August 2022 regarding an alleged breach of an exclusivity agreement, was settled on April 10, 2024[77](index=77&type=chunk)[78](index=78&type=chunk) - The settlement involved amending the supply agreement to clarify that Solesence can supply and sell finished products containing zinc oxide to customers globally, resolving the core of the dispute[79](index=79&type=chunk) Part II [Market for Common Equity and Related Matters](index=17&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on OTCQB, with no cash dividends paid or anticipated due to reinvestment plans and loan restrictions Common Stock Price Range (Fiscal Year 2024) | Quarter | High | Low | | :--- | :--- | :--- | | First | $0.98 | $0.43 | | Second | $1.71 | $0.70 | | Third | $1.65 | $1.33 | | Fourth | $2.88 | $1.30 | - The company has never declared or paid cash dividends and intends to retain future earnings for reinvestment. Loan agreements with lenders also restrict dividend payments without prior consent[83](index=83&type=chunk) [Management's Discussion and Analysis (MD&A)](index=17&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Solesence achieved a significant financial turnaround in 2024, with revenue growth, net profit, improved margins, and positive operating cash flow, driven by consumer product sales [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Total revenue increased 40% to $52.3 million in 2024, driven by consumer products, leading to a net income of $4.2 million and improved gross margin Consolidated Statement of Operations Summary (in thousands) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $52,347 | $37,297 | +40.3% | | Gross Profit | $16,188 | $7,825 | +106.9% | | Net Income (Loss) from Operations | $5,132 | $(3,546) | N/A | | Net Income (Loss) | $4,235 | $(4,390) | N/A | | Diluted EPS | $0.07 | $(0.09) | N/A | - The increase in product revenue to **$51.9 million** in 2024 from **$36.6 million** in 2023 was due to a significant increase in revenue from consumer products, partially offset by decreases in personal care ingredients and advanced materials[88](index=88&type=chunk) - Selling, general and administrative (SG&A) expenses decreased to **$7.2 million** in 2024 from **$7.5 million** in 2023, largely due to a decrease in legal costs[93](index=93&type=chunk) - An inventory reserve of **$1,987,000** was applied in 2024 for materials nearing expiration, soon-to-be obsolete products, and raw materials no longer in regular use[86](index=86&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity significantly improved in 2024 with positive operating cash flow and a $6 million preferred stock issuance, enabling debt reduction and capital expenditures Cash Flow Summary (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash from Operating Activities | $1,971 | $(2,006) | | Cash used in Investing Activities | $(4,558) | $(1,051) | | Cash from Financing Activities | $2,274 | $2,593 | - In March 2024, the company issued **15,000 shares of Series X Preferred Stock** to Strandler, LLC for **$6 million**. These shares were subsequently converted into **15,000,000 shares of common stock** in June 2024 after a shareholder vote to increase authorized shares[102](index=102&type=chunk)[106](index=106&type=chunk)[285](index=285&type=chunk) - The maturity date on related-party debt facilities with Beachcorp, LLC and Strandler, LLC was extended to October 1, 2025. Subsequent to year-end, the lender committed to refinancing the debt with a new maturity date after April 1, 2026[107](index=107&type=chunk)[108](index=108&type=chunk)[301](index=301&type=chunk) - The company has federal net operating loss (NOL) carryforwards of approximately **$42 million** as of December 31, 2024, which can be used to offset future taxable income[112](index=112&type=chunk) [Controls and Procedures](index=23&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[117](index=117&type=chunk) - Based on an assessment using the COSO framework, management believes the company maintained effective internal control over financial reporting as of December 31, 2024[120](index=120&type=chunk)[121](index=121&type=chunk) - The annual report does not include an attestation report from the company's registered public accounting firm regarding internal controls, as permitted for smaller reporting companies[123](index=123&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=26&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company's Board of Directors and executive team oversee corporate governance through established committees, a Code of Ethics, and an Insider Trading Policy Board of Directors | Name | Position | Director Since | | :--- | :--- | :--- | | R. Janet Whitmore | Chair of the Board | 2003 | | Laura M. Beres | Director | 2020 | | Mark E. Miller | Director | 2023 | | Jess A. Jankowski | President, CEO, CFO, Director | 2009 | - The executive officers are Jess A. Jankowski (President, CEO, CFO) and Kevin Cureton (COO)[133](index=133&type=chunk)[145](index=145&type=chunk) - The Board has determined that directors Laura M. Beres and Mark E. Miller are independent. The company qualifies as a "controlled company" due to the majority ownership of Bradford T. Whitmore[187](index=187&type=chunk) [Executive Compensation](index=29&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation for named officers includes salary, bonuses, and equity awards, with outside directors receiving cash retainers and stock options 2024 & 2023 Named Executive Officer Compensation | Name and Position | Year | Salary ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Jess Jankowski, CEO | 2024 | 357,072 | 39,738 | 423,779 | | | 2023 | 341,409 | 5,521 | 374,849 | | Kevin Cureton, COO | 2024 | 309,256 | 39,738 | 370,293 | | | 2023 | 294,492 | 5,521 | 322,687 | - Performance milestones were achieved in 2024, and related bonuses will be paid. Milestones were not achieved in 2023, and no bonuses were paid for that year[162](index=162&type=chunk) 2024 Outside Director Compensation | Name | Fees Paid in Cash ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | R. Janet Whitmore | 24,000 | 21,193 | 45,193 | | Laura M. Beres | 18,000 | 15,895 | 33,895 | | Mark E. Miller | 18,000 | 15,895 | 33,895 | [Security Ownership](index=34&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Bradford T. Whitmore is the principal stockholder, owning approximately 71.08% of common shares, while executive officers and directors collectively own 4.84% - Bradford T. Whitmore is the majority beneficial owner, holding approximately **71.08%** of the company's common stock as of March 28, 2025[183](index=183&type=chunk)[186](index=186&type=chunk) - All current executive officers and directors as a group beneficially own **3,441,304 shares**, representing **4.84%** of the outstanding common stock[183](index=183&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2024) | Category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities available for future issuance | | :--- | :--- | :--- | :--- | | Plans Approved by Shareholders | 3,212,000 | $1.47 | 63,000 | [Related Transactions and Director Independence](index=35&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company maintains significant financial relationships with its majority shareholder and affiliates, while the Board has independent directors and qualifies as a "controlled company" - The company has engaged in a series of debt and equity transactions with entities affiliated with its majority shareholder, Bradford T. Whitmore, including Beachcorp, LLC and Strandler, LLC[185](index=185&type=chunk)[98](index=98&type=chunk) - Bradford T. Whitmore is the brother of R. Janet Whitmore, the Chair of the Board of Directors[185](index=185&type=chunk) - The Board has identified Laura M. Beres and Mark E. Miller as independent directors[187](index=187&type=chunk) [Principal Accounting Fees and Services](index=36&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) RSM US LLP billed approximately $296,000 in 2024 for audit and audit-related services, all pre-approved by the Audit and Finance Committee Accountant Fees (RSM US LLP) | Fee Type | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Audit Fees | $270,000 | $263,000 | | Audit-Related Fees | $26,000 | $26,000 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | **Total** | **$296,000** | **$289,000** | - All audit and non-audit services provided by the principal accountant are pre-approved by the Audit and Finance Committee[192](index=192&type=chunk)[193](index=193&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=37&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section includes consolidated financial statements, the independent auditor's report, and a comprehensive index of all exhibits filed with the Form 10-K - This part includes the consolidated financial statements and the report of the independent registered public accounting firm, RSM US LLP[197](index=197&type=chunk)[202](index=202&type=chunk) - An extensive exhibit index lists all filed documents, including governance documents, material contracts, debt agreements, and executive compensation plans[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=39&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) RSM US LLP issued an unqualified opinion on the consolidated financial statements, identifying inventory reserve valuation as a critical audit matter - RSM US LLP expressed an unqualified opinion, stating the financial statements are presented fairly in accordance with U.S. GAAP[205](index=205&type=chunk) - The valuation of the inventory excess and obsolete reserve was identified as a Critical Audit Matter (CAM) because it involved significant and subjective management judgments[209](index=209&type=chunk)[212](index=212&type=chunk) [Consolidated Financial Statements](index=41&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements reflect significant financial improvement in 2024, with increased assets and stockholders' equity, and a shift from net loss to net income Key Balance Sheet Data (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $29,348 | $16,302 | | Total Assets | $50,002 | $32,881 | | Total Current Liabilities | $25,773 | $15,589 | | Total Liabilities | $35,056 | $30,979 | | Total Stockholders' Equity | $14,946 | $1,902 | Key Income Statement Data (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenue | $52,347 | $37,297 | | Gross Profit | $16,188 | $7,825 | | Net Income (Loss) | $4,235 | $(4,390) | [Notes to Consolidated Financial Statements](index=45&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the strategic shift to consumer products, related-party transactions, inventory changes, and subsequent events like rebranding and debt refinancing - The company's strategic focus is on its Solesence consumer products line, which has become the majority of the business and the primary driver of growth[226](index=226&type=chunk) Revenue by Product Category (in thousands) | Product Category | 2024 | 2023 | | :--- | :--- | :--- | | Consumer Products | $44,373 | $25,211 | | Personal Care Ingredients | $6,827 | $9,277 | | Advanced Materials | $1,147 | $2,809 | | **Total** | **$52,347** | **$37,297** | Inventories, net (in thousands) | Component | 2024 | 2023 | | :--- | :--- | :--- | | Raw materials | $17,396 | $8,524 | | Finished goods | $4,858 | $2,184 | | Inventory reserve | $(1,987) | $(677) | | **Total** | **$20,267** | **$10,031** | - In March 2024, the company issued **$6 million** in Series X Preferred Stock to Strandler, LLC, an affiliate of the majority shareholder. This was converted to **15 million shares of common stock** in June 2024[280](index=280&type=chunk)[285](index=285&type=chunk) - Subsequent to year-end, in March 2025, the company rebranded from Nanophase Technologies Corporation to Solesence, Inc. and secured a commitment to refinance its related-party debt maturing in October 2025[300](index=300&type=chunk)[301](index=301&type=chunk)

Solésence Fourth Quarter and Full-Year 2024 Financial Results [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Solésence achieved record Q4 and full-year 2024 revenue, with significant profitability improvements, turning a net loss into net income Full-Year 2024 vs. 2023 Financial Performance | Metric | Full Year 2024 | Full Year 2023 | Change | | :--- | :--- | :--- | :--- | | **Revenue** | $52.3 million | $37.3 million | +40% | | **Gross Profit** | $16.2 million | $7.8 million | +107% | | **Gross Margin** | 31% | 21% | +10 p.p. | | **Net Income/(Loss)** | $4.2 million | ($4.4 million) | N/A | Fourth Quarter 2024 vs. 2023 Financial Performance | Metric | Q4 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | **Revenue** | $12.6 million | $8.0 million | +57.5% | | **Gross Profit** | $2.8 million | $0.5 million | +460% | | **Gross Margin** | 22% | 6% | +16 p.p. | | **Net Loss** | ($0.6 million) | ($2.1 million) | +71.7% | [Operational & Strategic Highlights](index=1&type=section&id=Operational%20%26%20Strategic%20Highlights) Solésence executed key strategic initiatives, including rebranding, capacity expansion, new SKU launches, and plans a 2025 NASDAQ uplisting - The company plans to pursue an uplisting to the NASDAQ market in **2025** and is beginning the search for a dedicated Chief Financial Officer[4](index=4&type=chunk) - Initiated expansion of batch-making capabilities, increasing capacity to support over **$200 million** in annual revenue from the consumer products line[16](index=16&type=chunk) - The company rebranded as Solésence, Inc. to reflect its consumer products strategy and launched a new investor relations website[7](index=7&type=chunk) - Operational achievements include producing **double the unit volume** in Q4 2024 compared to Q4 2023 and launching over **two dozen new SKUs**[16](index=16&type=chunk) [Consolidated Financial Statements](index=3&type=section&id=FINANCIAL%20RESULTS%20AND%20NON-GAAP%20INFORMATION) Consolidated financial statements detail significant asset growth and a turnaround from net loss to net income in 2024, driven by revenue and margin improvements [Consolidated Balance Sheets](index=3&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Total assets grew to **$50.0 million** by December 31, 2024, driven by inventories and receivables, with stockholders' equity improving to **$14.9 million** Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash | $1,409 | $1,722 | | Inventories, net | $20,267 | $10,031 | | Total current assets | $29,348 | $16,302 | | **Total assets** | **$50,002** | **$32,881** | | Total current liabilities | $25,773 | $21,589 | | **Total liabilities** | **$35,056** | **$30,979** | | **Total stockholders' equity** | **$14,946** | **$1,902** | [Consolidated Statements of Operations](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Full-year 2024 net revenue increased **40%** to **$52.3 million**, resulting in **$4.2 million** net income and **$0.07** diluted EPS, reversing a prior-year net loss Consolidated Statement of Operations - Full Year (in thousands, except per share data) | Metric | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net Revenue | $52,347 | $37,297 | | Gross Profit | $16,188 | $7,825 | | Income/(Loss) from Operations | $5,132 | ($3,546) | | **Net Income/(Loss)** | **$4,235** | **($4,384)** | | **Net Income per Share-diluted** | **$0.07** | **($0.09)** | Consolidated Statement of Operations - Fourth Quarter (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net Revenue | $12,567 | $8,011 | | Gross Profit | $2,766 | $471 | | Income/(Loss) from Operations | ($223) | ($1,897) | | **Net Loss** | **($558)** | **($2,122)** | | **Net Loss per Share-diluted** | **($0.01)** | **($0.04)** | [Non-GAAP Reconciliation (Adjusted EBITDA)](index=6&type=section&id=Non-GAAP%20Disclosure) Adjusted EBITDA for full-year 2024 was **$6.8 million**, a significant improvement from a **$2.0 million** loss in 2023, reflecting positive underlying profitability Adjusted EBITDA Reconciliation (in thousands) | Period | Net Income/(Loss) | Adjusted EBITDA | | :--- | :--- | :--- | | **Full Year 2024** | $4,235 | $6,784 | | **Full Year 2023** | ($4,384) | ($2,029) | | **Q4 2024** | ($558) | $253 | | **Q4 2023** | ($2,122) | ($1,499) |

PART I – FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Financial statements for Q3 2024 show significant growth in assets, revenue, and profitability, driven by Solésence® product performance [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$48.0 million** by September 30, 2024, with shareholders' equity rising to **$15.2 million** Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $29,761 | $16,302 | +$13,459 | | Trade accounts receivable, net | $8,732 | $3,467 | +$5,265 | | Inventories, net | $15,043 | $10,031 | +$5,012 | | **Total Assets** | **$48,047** | **$32,881** | **+$15,166** | | **Total Current Liabilities** | $23,288 | $21,589 | +$1,699 | | **Total Liabilities** | $32,878 | $30,979 | +$1,899 | | **Total Shareholders' Equity** | **$15,169** | **$1,902** | **+$13,267** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported a significant profitability turnaround, achieving **$4.8 million** net income for the nine months ended September 30, 2024 Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $16,866 | $7,958 | $39,780 | $29,286 | | **Gross Profit** | $6,102 | $1,530 | $13,422 | $7,354 | | **Income (Loss) from Operations** | $3,198 | $(1,222) | $5,355 | $(1,649) | | **Net Income (Loss)** | **$3,045** | **$(1,436)** | **$4,793** | **$(2,262)** | | **Diluted EPS** | $0.04 | $(0.03) | $0.08 | $(0.05) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was **$0.2 million** for the nine months ended September 30, 2024, resulting in a **$1.2 million** net cash increase Cash Flow Summary (Nine months ended Sep 30, in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(218) | $644 | | Net cash used in investing activities | $(1,965) | $(852) | | Net cash provided by (used in) financing activities | $3,386 | $(790) | | **Increase (decrease) in cash** | **$1,203** | **$(998)** | | **Cash at end of period** | **$2,925** | **$1,188** | [Notes to Unaudited Consolidated Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Condensed%20Financial%20Statements) Notes detail the company's skin health focus, revenue streams, debt, and customer concentration, including a **$6 million** stock issuance - The company's business is focused on beauty and life-science markets, with skin health (via Solésence® subsidiary) and medical diagnostics being the primary drivers of its growth strategy[18](index=18&type=chunk) - In March 2024, the company issued **15,000 shares** of Series X Preferred Stock to Strandler, LLC for **$6 million**. These shares were subsequently converted into **15,000,000 shares** of common stock in June 2024[46](index=46&type=chunk)[51](index=51&type=chunk) Revenue by Product Category (in thousands) | Product Category | Nine Months 2024 | Nine Months 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Solésence | $32,904 | $17,839 | +84.5% | | Personal Care Ingredients | $5,966 | $8,944 | -33.3% | | Advanced Materials | $910 | $2,503 | -63.6% | | **Total Sales** | **$39,780** | **$29,286** | **+35.8%** | - Four major customers accounted for **62%** of total revenue in the first nine months of 2024, indicating significant customer concentration. Customer 1 (Solésence®) alone represented **34%** of revenue[52](index=52&type=chunk)[53](index=53&type=chunk) [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 attributes strong financial performance to strategic reorientation towards beauty science, driven by Solésence® growth and improved gross margin - The company's strategic focus is now primarily on the beauty science market through its Solésence subsidiary, which develops and manufactures prestige skin care products. Legacy advanced materials are no longer a strategic focus[59](index=59&type=chunk)[64](index=64&type=chunk) - The increase in cost of revenue for the nine-month period was driven by higher sales volume, price inflation on materials, and manufacturing operating inefficiencies[67](index=67&type=chunk) - The company's most critical operational issue is reducing controllable variable product manufacturing costs. Management expects margins to improve as production scales and fixed costs are more efficiently absorbed[68](index=68&type=chunk) - Projected capital spending for 2024 is between **$1 million** and **$2 million**, aimed at expanding manufacturing capacity to meet growing demand[75](index=75&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Nanophase is not required to provide market risk disclosures - Disclosure is not required for a smaller reporting company[79](index=79&type=chunk) [Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective at providing reasonable assurance[81](index=81&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[82](index=82&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[84](index=84&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Nanophase is not required to provide risk factor disclosures - Not required for a smaller reporting company[84](index=84&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None[85](index=85&type=chunk) [Exhibits](index=27&type=section&id=Item%206.%20Exhibits) The report includes required CEO and PFO certifications and financial statements formatted in XBRL - Exhibits filed include CEO and PFO certifications (31.1, 31.2, 32) and XBRL data files (101)[88](index=88&type=chunk)

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Operations, Shareholders' Equity, Cash Flows, and accompanying notes, are presented [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$40,849** | **$32,881** | | Total current assets | $24,260 | $16,302 | | **Total Liabilities** | **$28,925** | **$30,979** | | Total current liabilities | $13,769 | $15,589 | | **Total Shareholders' Equity** | **$11,924** | **$1,902** | - Total assets increased primarily due to growth in inventories (from **$10.0 million** to **$13.9 million**) and trade accounts receivable (from **$3.5 million** to **$5.9 million**)[6](index=6&type=chunk) - Shareholders' equity significantly increased from **$1.9 million** to **$11.9 million**, mainly driven by net income and the issuance of common stock following the conversion of preferred stock[6](index=6&type=chunk)[10](index=10&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $13,046 | $11,872 | $22,914 | $21,329 | | Gross Profit | $3,740 | $3,675 | $7,320 | $5,824 | | Income (loss) from operations | $1,047 | $579 | $2,156 | $(425) | | **Net Income (Loss)** | **$856** | **$333** | **$1,747** | **$(825)** | | Net income (loss) per diluted share | $0.01 | $0.01 | $0.03 | $(0.02) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (in thousands) | Activity | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,420) | $(1,961) | | Net cash used in investing activities | $(562) | $(811) | | Net cash provided by financing activities | $5,618 | $2,783 | | **Increase in cash and cash equivalents** | **$636** | **$11** | | Cash and cash equivalents at end of period | $2,358 | $2,197 | - The significant cash used in operating activities in H1 2024 was primarily due to increases in inventories (**$3.8 million**) and trade accounts receivable (**$2.5 million**)[13](index=13&type=chunk) - Financing activities in H1 2024 were driven by **$6.0 million** proceeds from the issuance of mezzanine preferred stock and **$2.0 million** from stock issuances/options, offset by debt repayments[13](index=13&type=chunk) [Notes to Financial Statements](index=8&type=section&id=Notes%20to%20Financial%20Statements) - The company's business is focused on beauty and life-science markets, primarily skin health via its Solésence® subsidiary and medical diagnostics ingredients, though demand for the latter has decreased[17](index=17&type=chunk) Revenue by Product Category (in thousands) | Product Category | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Solésence | $19,304 | $12,823 | | Personal Care Ingredients | $3,121 | $6,581 | | Advanced Materials | $489 | $1,925 | | **Total Sales** | **$22,914** | **$21,329** | - The company has a high customer concentration, with its top four customers accounting for **62%** of total revenue in the first six months of 2024, down from **65%** in the same period of 2023[49](index=49&type=chunk) - In March 2024, the company issued **$6 million** in Series X Preferred Stock to related party Strandler, LLC. These shares were subsequently converted into **15 million** shares of common stock in June 2024 after shareholder approval to increase authorized shares[41](index=41&type=chunk)[48](index=48&type=chunk) - On April 10, 2024, the company settled a legal dispute with BASF Corporation, which involved amending their supply agreement to clarify exclusivity provisions for zinc oxide materials[52](index=52&type=chunk)[53](index=53&type=chunk) [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 discusses financial performance, highlighting revenue growth driven by Solésence® beauty science, offsetting declines in other segments, and covers liquidity, capital resources, and future requirements [Results of Operations](index=18&type=section&id=Results%20of%20Operations) - Total revenue increased by **9.8%** to **$13.0 million** in Q2 2024 and by **7.4%** to **$22.9 million** in H1 2024, compared to the same periods in 2023[61](index=61&type=chunk) - The revenue increase was driven by continued growth in Solésence® products, which was partially offset by a decrease in API sales to the largest customer in the personal care ingredients business[63](index=63&type=chunk) - Cost of revenue for H1 2024 increased to **$15.6 million** from **$15.5 million** in H1 2023, primarily driven by increased volume and manufacturing inefficiencies related to Solésence® product launches[65](index=65&type=chunk) - Both R&D and SG&A expenses decreased in Q2 and H1 2024 compared to 2023, largely due to reduced legal costs[68](index=68&type=chunk)[69](index=69&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) Cash Flow Summary (in thousands) | Activity | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :--- | :--- | :--- | | Cash used in operating activities | $(4,420) | $(1,961) | | Cash used in investing activities | $(562) | $(811) | | Cash provided by financing activities | $5,618 | $2,783 | - The company's loan agreements with related parties Strandler, LLC and Beachcorp, LLC are set to expire on October 1, 2025, which could become an operating risk if not refinanced or extended[37](index=37&type=chunk)[73](index=73&type=chunk) - Capital spending for 2024 is expected to be between **$3 million** and **$6 million**, funded by profits, existing loans, and possible new debt financing[74](index=74&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Nanophase is not required to provide quantitative and qualitative disclosures about market risk - Disclosure is not required for a smaller reporting company[79](index=79&type=chunk) [Controls and Procedures](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[80](index=80&type=chunk) - There were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[81](index=81&type=chunk) [PART II – OTHER INFORMATION](index=25&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) This section details the settlement of a lawsuit with BASF Corporation regarding an exclusivity agreement, resolved on April 10, 2024, through an amended supply agreement and mutual release of claims - The company settled a lawsuit with BASF Corporation on April 10, 2024, resolving a dispute over an alleged breach of an exclusivity provision in their supply agreement[85](index=85&type=chunk) - As part of the settlement, the supply agreement was amended to clarify that while BASF has exclusive rights to zinc oxide materials sold by Nanophase as an ingredient, Nanophase and its subsidiary Solésence can sell finished products containing zinc oxide globally[86](index=86&type=chunk) - The lawsuit was formally dismissed with prejudice on April 11, 2024[85](index=85&type=chunk) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, Nanophase is not required to provide a discussion of risk factors in its Form 10-Q - Disclosure is not required for a smaller reporting company[87](index=87&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None[88](index=88&type=chunk) [Defaults Upon Senior Securities](index=25&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[88](index=88&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[89](index=89&type=chunk) [Other Information](index=25&type=section&id=Item%205.%20Other%20Information) The company reported no other information required to be disclosed in this item - None[90](index=90&type=chunk) [Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and PFO, and financial statements in XBRL format - The report includes certifications from the CEO and PFO as required by the Exchange Act (Exhibits 31.1, 31.2) and U.S.C. Section 1350 (Exhibit 32)[92](index=92&type=chunk) - Interactive Data Files (XBRL) for the financial statements and notes are included as Exhibit 101[92](index=92&type=chunk)