Solesence Inc(SLSN) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements 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 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 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 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] Consolidated Statements of Cash Flows 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 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][19] - 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] - For Q1 2025, three significant customers accounted for 42% of total revenue, a decrease from 61% in Q1 2024, indicating reduced customer concentration[43][44] 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 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] - 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] - 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] - Cost of revenue increased significantly in Q1 2025 due to higher volume, manufacturing inefficiencies, and facility improvements, negatively impacting gross margin percentage[59] - The company's primary operational focus is on increasing manufacturing throughput and reducing controllable variable manufacturing costs to improve margins as revenue scales[60] - 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][68] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Solesence, Inc. is not required to provide these disclosures - Disclosure is not required for a smaller reporting company[72] Controls and Procedures 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] - 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] PART II – OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - None[77] Risk Factors As a smaller reporting company, Solesence, Inc. is not required to provide this information - Not required for a smaller reporting company[78] 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[79] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[80] Mine Safety Disclosures This item is not applicable to the company - Not applicable[81] Other Information The company reported no other information - None[82] Exhibits 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]