Solesence Inc(SLSN) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Financial statements for Q3 2024 show significant growth in assets, revenue, and profitability, driven by Solésence® product performance Consolidated Balance Sheets 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 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 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 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] - 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][51] 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][53] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][64] - 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] - 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] - Projected capital spending for 2024 is between $1 million and $2 million, aimed at expanding manufacturing capacity to meet growing demand[75] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Nanophase is not required to provide market risk disclosures - Disclosure is not required for a smaller reporting company[79] Controls and Procedures 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] - 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] PART II – OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - None[84] Risk Factors As a smaller reporting company, Nanophase is not required to provide risk factor disclosures - Not required for a smaller reporting company[84] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[85] Exhibits 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]