Solésence restates Q2 2026, posts $256K net loss
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Solésence, Inc. (SLSN) amended its second-quarter report to restate its financial statements after identifying errors in labor and overhead allocations used in inventory costing. The company said statements for 2023–2025 and several interim periods through June 2026 should no longer be relied upon. The corrections reduced inventory by $157,000 at June 30, 2026 and $3.632 million at December 31, 2025, but did not affect actual cash receipts or payments.
Restated revenue was $15.332 million in Q2 2026 versus $20.359 million a year earlier, and $28.290 million for the first half versus $34.984 million. Net loss was $256,000 for Q2 and $1.193 million for the first half, compared with net income of $3.321 million and $3.552 million in the corresponding 2025 periods. Net cash provided by operating activities was $1.708 million for the first half, versus $7.875 million used in 2025; restatement adjustments did not change operating cash flow.
Management identified material weaknesses in inventory costing and oversight and review of financial reporting and restatement activities, and concluded that internal and disclosure controls were not effective as of June 30, 2026. A July 6, 2026 settlement with Refy Beauty Ltd. resulted in a $938,000 liability and expense; the parties agreed to a six-month exclusivity period to develop an SPF product and negotiate a potential commercial agreement.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointFirst-half operating cash flow was $1.708 million provided, versus $7.875 million used.
Negative
- Major pointInternal and disclosure controls were ineffective as of June 30, 2026.
- Moderate pointRevenue: $15.332 million Q2 and $28.290 million H1, below 2025.
- Moderate pointNet losses reached $256,000 Q2 and $1.193 million H1, versus 2025 profits.
Filing Explained
Weaknesses remain unremediated; the Refy obligation is fixed, but whether its final half is paid in installments or purchase credits depends on a commercial agreement.
The amendment says internal controls over financial reporting were ineffective as of
At
Key Figures
Key Terms
overhead burden rates financial
material weakness financial
recognized subsequent event financial
antidilutive financial
contract liabilities financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
Why did SLSN restate its financial statements?
How much revenue and what earnings did SLSN report for Q2 2026?
Which control weaknesses did SLSN identify?
What are the payment terms of Solésence's Refy settlement?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Amendment No. 1)
THE SECURITIES EXCHANGE ACT OF 1934
For
the Quarterly Period Ended:
or
the Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission
File Number:
Solésence, Inc.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices, and zip code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As
of August 19, 2026, there were
EXPLANATORY NOTE
We are filing this Amendment to restate our interim consolidated financial statements and related financial information for the period ended June 30, 2026.
Background of the Restatement
As previously disclosed in its Quarterly Report on Form 10-Q filed August 19, 2026, and in its Current Report on Form 8-K filed on August 21, 2026, during its review of inventory accounting in connection with the preparation of its unaudited condensed consolidated financial statements for the quarter ended June 30, 2026, Solésence, Inc., formerly known as Nanophase Technologies Corporation (the “Company”), identified errors in its historical accounting for labor and overhead included in inventories. The historical process allocated certain labor and overhead between raw materials and finished goods using budget-based percentages and allocation bases that were not sufficiently supported. The process also did not consistently limit capitalized costs to eligible acquisition and production costs, allocate variable overhead based on actual activity, or adjust standard or budgeted amounts so that they approximated actual cost. The Company concluded that the historical process did not comply with the inventory-costing requirements in ASC 330, Inventory.
As a result, inventories were overstated and cost of revenue was misstated. The errors also affected gross profit, operating income (loss), income (loss) before income taxes, net income (loss), basic and diluted earnings (loss) per share, accumulated deficit, total stockholders’ equity and related disclosures in the periods affected. The Company determined the correction from its accounting records, including general-ledger and inventory detail, cost-pool and burden-rate schedules, inventory roll-forwards and the Company’s internal inventory-cost model.
After considering the requirements of ASC 250, Accounting Changes and Error Corrections, and the quantitative and qualitative factors in SEC Staff Accounting Bulletin (“SAB”) Topic 1.M and Topic 1.N, on August 17, 2026, the Audit Committee, Board of Directors and Executive Officers of the Company concluded that the Company’s previously issued consolidated financial statements as of and for the years ended December 31, 2023, 2024, and 2025, as of and for the three months ended March 31, 2024, 2025, and 2026, as of and for the three and six months ended June 30, 2024 and 2025, and as of and for the three and nine months ended September 30, 2024 and 2025 should no longer be relied upon. The Company is filing amendments to its Annual Reports on Form 10-K for the years ended December 31, 2024 and 2025 and its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2025, March 31, 2026 and June 30, 2026. The restated 2023 financial statements and related disclosures are included in the 2024 Form 10-K/A; a separate amendment to the 2023 Form 10-K will not be filed.
The Audit Committee has discussed with the Company’s independent accountant the matters disclosed herein.
Impact of the Restatement
The corrections resulted in a change in inventory on our Consolidated Balance Sheets and a corresponding change in cost of revenue on our Consolidated Statement of Operations. The effects of the Restatement on our previously reported Consolidated Statements of Operations, Consolidated Balance Sheets, and Consolidated Cash Flows are detailed in Note 3, "Restatement of Previously Issued Financial Statements," to the Consolidated Financial Statements included in Part I - Item 1 of this Amendment.
Internal Controls and Assessments
In connection with this Restatement, management has re-evaluated the effectiveness of our internal controls over financial reporting as of June 30, 2026. Management identified material weaknesses in inventory costing and in oversight and review of financial reporting and restatement activities. Accordingly, our internal controls and disclosure controls and procedures were not effective as of June 30, 2026. See Part I - Item 4, "Controls and Procedures," for additional information and our remediation plan.
Scope of this Amendment
This Amendment includes revisions to, among other things: Part I - Item 1, Item 2, & Item 4, and Part II – Item 6.
Except as described above, this Amendment does not reflect events occurring after the filing of the Original Filing, nor does it modify or update disclosures in the Original Filing in any way. This Amendment should be read in conjunction with the Original Filing and our other subsequent filings with the SEC.
SOLÉSENCE, INC.
QUARTER ENDED JUNE 30, 2026
INDEX
| Page | |||
| PART I – FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | 4 | |
| Consolidated Balance Sheets (Unaudited Consolidated Condensed) as of June 30, 2026, and December 31, 2025 | 4 | ||
| Consolidated Statements of Operations (Unaudited Consolidated Condensed) for the three and six months ended June 30, 2026, and 2025 | 5 | ||
| Consolidated Statements of Shareholders’ Equity (Unaudited Consolidated Condensed) for the three and six months ended June 30, 2026, and 2025 | 6 | ||
| Consolidated Statements of Cash Flows (Unaudited Consolidated Condensed) for the six months ended June 30, 2026, and 2025 | 8 | ||
| Notes to Unaudited Consolidated Condensed Financial Statements | 9 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |
| Item 4. | Controls and Procedures | 22 | |
| PART II – OTHER INFORMATION | 24 | ||
| Item 6. | Exhibits | 24 | |
| SIGNATURES | 25 | ||
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SOLÉSENCE, INC.
CONSOLIDATED BALANCE SHEETS (AS RESTATED)
(Unaudited Consolidated Condensed)
| As of | ||||||||
| June 30, 2026 (As Restated) | December 31, 2025 (As Restated) | |||||||
| (in thousands except share and per share data) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Trade accounts receivable | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Trade accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Equipment and leasehold improvements, net | ||||||||
| Operating leases, right of use | ||||||||
| Other assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Line of credit – accounts receivable, related party | $ | $ | ||||||
| Current portion of line of credit, inventory, related party | — | |||||||
| Current portion of debt, related parties | — | |||||||
| Current portion of operating lease obligations | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term portion of operating lease obligations | ||||||||
| Long-term line of credit – inventory, related party | — | |||||||
| Long-term debt, related party | — | |||||||
| Asset retirement obligations | ||||||||
| Total long-term liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | — | — | ||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
(See accompanying Notes to Consolidated Financial Statements)
4
SOLÉSENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (AS RESTATED)
(Unaudited Consolidated Condensed)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2026 (As Restated) | 2025 (As Restated) | 2026 (As Restated) | 2025 (As Restated) | |||||||||||||
| Revenue: | ||||||||||||||||
| Product revenue | $ | $ | $ | $ | ||||||||||||
| Other revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expense: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Research and development expense | ||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Net income (loss) from operations | ( | ) | ||||||||||||||
| Interest expense, net | ||||||||||||||||
| Other income, net | — | |||||||||||||||
| Net income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | — | — | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income (loss) per share-basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of basic common shares outstanding | ||||||||||||||||
| Net income (loss) per share-diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of diluted common shares outstanding | ||||||||||||||||
(See accompanying Notes to Consolidated Financial Statements)
5
SOLÉSENCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (AS RESTATED)
(Unaudited Consolidated Condensed)
(in thousands except share data)
For the six months ended June 30, 2025
| Description | Preferred shares | Preferred stock | Common shares | Common stock | Additional paid-in capital | Accumulated deficit (As Restated) | Total (As Restated) | |||||||||||||||||||||
| Balance on December 31, 2024 (previously reported) | — | $ | — | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
| Restatement adjustment (Note 3) | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance on December 31, 2024 (as restated) | — | — | ( | ) | ||||||||||||||||||||||||
| Issuance of shares and stock option exercises | — | — | — | — | — | |||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||
| Net income for the three months ended March 31, 2025 (as restated) | — | — | — | — | — | |||||||||||||||||||||||
| Balance on March 31, 2025 (as restated) | — | — | ( | ) | ||||||||||||||||||||||||
| Issuance of shares and stock option exercises | — | — | — | |||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||
| Net income for the three months ended June 30, 2025 (as restated) | — | — | — | — | — | |||||||||||||||||||||||
| Balance on June 30, 2025 (as restated) | — | — | ( | ) | ||||||||||||||||||||||||
For the six months ended June 30, 2026
| Description | Preferred shares | Preferred stock | Common shares | Common stock | Additional paid-in capital | Accumulated deficit (As Restated) | Total (As Restated) | |||||||||||||||||||||
| Balance on December 31, 2025 (previously reported) | — | $ | — | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
| Restatement adjustment (Note 3) | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance on December 31, 2025 (as restated) | — | — | ( | ) | ||||||||||||||||||||||||
| Issuance of shares and stock option exercises | — | — | — | — | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||
| Net loss for the three months ended March 31, 2026 (as restated) | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance on March 31, 2026 (as restated) | — | — | ( | ) | ||||||||||||||||||||||||
| Issuance of shares and stock option exercises | — | — | — | — | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | |||||||||||||||||||||||
6
| Description | Preferred shares | Preferred stock | Common shares | Common stock | Additional paid-in capital | Accumulated (As Restated) | Total (As Restated) | |||||||||||||||||||||
| Net loss for the three months ended June 30, 2026 (as restated) | — | — | — | — | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance on June 30, 2026 (as restated) | — | — | ( | ) | ||||||||||||||||||||||||
(See accompanying Notes to Consolidated Financial Statements)
7
SOLÉSENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (AS RESTATED)
(Unaudited Consolidated Condensed)
| Six months ended June 30, | ||||||||
2026 (As Restated) | 2025 (As Restated) | |||||||
| (in thousands) | ||||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Changes in assets and liabilities related to operations: | ||||||||
| Trade accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories, net | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Deferred revenue | ( | ) | ||||||
| Change in right of use asset and lease liability, net | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Investing activities: | ||||||||
| Acquisition of equipment and leasehold improvements | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from line of credit - inventory, related party | — | |||||||
| Proceeds from line of credit – accounts receivable, related party | — | |||||||
| Payments to line of credit – accounts receivable, related party | ( | ) | — | |||||
| Proceeds from issuance of stock and exercise of stock options | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| (Decrease) increase in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Income taxes paid | $ | — | $ | |||||
| Supplemental non-cash investing and financing activities: | ||||||||
| Accounts payable incurred for the purchase of equipment and leasehold improvements | $ | $ | ||||||
(See accompanying Notes to Consolidated Financial Statements)
8
SOLÉSENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited Consolidated Condensed As Restated)
(In thousands, except share and per share data or as otherwise noted herein)
(1) Basis of Presentation
The accompanying unaudited consolidated condensed interim financial statements of Solésence, Inc. (“Solésence”, “Company”, “we”, “our”, or “us”) reflect all adjustments that, in the opinion of management, are necessary for a fair statement of our financial position and operating results for the interim periods presented. These adjustments consist of normal recurring adjustments and the restatement adjustments described in Note 3. All statements include the results from both Solésence, Inc. and our wholly-owned subsidiary, Solésence, LLC. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
These financial statements should be read in conjunction with our restated consolidated financial statements and notes thereto for the year ended December 31, 2025. The December 31, 2025 balance sheet amounts presented herein agree with that restated annual financial information.
(2) Description of Business
Solésence, Inc. (“Solésence”, “Company”, “we”, “our”, or “us”) is a science- and technology-driven consumer health company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused across beauty and health care markets. Our skin health products are built on a platform of vertically-integrated, proprietary technologies with global patent protection, and currently comprise the majority of our business and drive our forward growth strategy. Through working with selected customers (“clients,” “brand partners”), we offer skin health and beauty products infused with SPF protection and other key health claims as fully finished goods for sun care, skin care, color cosmetics, and scalp applications.
Our expertise in materials engineering enables us to create technologies that enhance protection against UV and environmental damage, quench free radicals that compromise skin health, and reduce the inflammatory response in human skin. While a few legacy products remain that are no longer considered strategic, all products, including with medical diagnostics, fall into the advanced materials product category.
We target markets primarily related to beauty and consumer health where we believe our Solésence® products offer practical and competitive solutions. We work closely with customers in these target markets to identify material and performance requirements that consumers prefer.
During 2015 we were granted a patent on a new type of particle surface treatment (coating) — now called Active Stress Defense ™ Technology — which became the cornerstone of our new product development in personal care, with first revenue recognized during 2016. Active Stress Defense™ now refers to a suite of proprietary technologies — Original Active Stress Defense™ and Kleair™ — which optimize zinc oxide, improving both its performance and aesthetics, to reimagine the consumer experience of skin health centered and SPF-infused beauty. As of 2026, our technology suite now also includes Blüm™, which reduces free radicals from HEV (blue) light; Chromalüm™, which works synergistically with the Active Stress Defense™ suite to enable state-of-the-art blue light protection and high sheer formulas; and WHSPR™, which maximizes allantoin’s soothing benefits in previously inaccessible product formats across skincare, sun care, makeup, and scalp care.
Our ongoing innovation efforts include new IP in areas that advance environmental protection, align with market needs, and complement our existing technologies. Through the creation of our Solésence beauty science subsidiary, we utilize our technology suite in the manufacture and sale of fully developed solutions to targeted customers in the skin care industry, typically in prestige skin care and cosmetics markets, in addition to the ingredients we have traditionally sold in the personal care area.
Although our primary strategic focus has been the North American market, we currently sell products to customers overseas. As part of our announced strategic initiative, Transform and Transcend, we have been working to expand our reach within foreign markets.
On April 8, 2025, the Company’s securities were uplisted to Nasdaq trading under the symbol SLSN. Prior to listing on Nasdaq our common stock traded on the OTCQB marketplace under the symbol NANX.
While product sales comprise the majority of our revenue, we also recognize revenue from other sources from time to time. These activities are not expected to drive the long-term growth of the business. For this reason, we classify such revenue as “other revenue” in our Consolidated Statements of Operations, as it does not represent revenue directly from the sale of our products.
9
Under SEC Release 33-10513; 34-83550, Amendments to Smaller Reporting Company Definition, the Company qualifies as a smaller reporting company and accordingly, it has scaled some of its disclosures of financial and non-financial information in this quarterly report. The Company will continue to determine whether to provide additional scaled disclosures of financial or non-financial information in future quarterly reports, annual reports and/or proxy statements if it remains a smaller reporting company under SEC rules.
(3) Restatement of Previously Issued Consolidated Financial Statements
The Company has restated the previously issued financial information presented in these unaudited consolidated condensed financial statements as of June 30, 2026 and December 31, 2025 and for the three and six months ended June 30, 2026 and 2025 to correct errors in the determination and application of overhead burden rates used in inventory costing. The errors resulted in overstated raw materials and finished goods inventories, on a net basis after considering the overstatement of reserves for excess and obsolete inventories and misstated cost of revenue. The correction decreased inventories, total assets and stockholders’ equity and increased accumulated deficit. The restatement has changed the Unaudited Consolidated Financial Statements and Notes 5, 7 and 8.
The
correction reduced inventories by approximately $
Opening
accumulated deficit at January 1, 2026 and January 1, 2025 increased by approximately $
The restatement did not affect actual cash receipts or payments. With respect to the consolidated statement of cash flows, the changes to net income and the year-over-year change in inventory balance offset each other, resulting in no change to net cash provided by or used in operating activities. Net cash flows from investing and financing activities and beginning and ending cash balances were also unchanged.
The following tables summarize the effects of the corrections. Amounts are in thousands, except per-share amounts.
Condensed unaudited consolidated balance sheet at June 30, 2026
As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Inventories, net | $ | $ | ( | ) | $ | |||||||
| Total current assets | ( | ) | ||||||||||
| Total assets | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ equity | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity | ( | ) | ||||||||||
Condensed consolidated balance sheet at December 31, 2025
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Inventories, net | $ | $ | ( | ) | $ | |||||||
| Total current assets | ( | ) | ||||||||||
| Total assets | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ equity | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity | ( | ) | ||||||||||
10
Condensed unaudited consolidated statement of operations for the three months ended June 30, 2026
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Cost of revenue | $ | $ | $ | |||||||||
| Gross profit | ( | ) | ||||||||||
| Income (loss) from operations | ( | ) | ||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | — | — | — | |||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||
| Basic earnings (loss) per share | ( | ) | ( | ) | ||||||||
| Diluted earnings (loss) per share | ( | ) | ( | ) | ||||||||
Condensed unaudited consolidated statement of operations for the three months ended June 30, 2025
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Cost of revenue | $ | $ | ( | ) | $ | |||||||
| Gross profit | ||||||||||||
| Income (loss) from operations | ||||||||||||
| Income (loss) before income taxes | ||||||||||||
| Provision for income taxes | — | |||||||||||
| Net income (loss) | ||||||||||||
| Basic earnings (loss) per share | ||||||||||||
| Diluted earnings (loss) per share | ||||||||||||
Condensed unaudited consolidated statement of operations for the six months ended June 30, 2026
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Cost of revenue | $ | $ | $ | |||||||||
| Gross profit | ( | ) | ||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||
| Basic earnings (loss) per share | ( | ) | ( | ) | ||||||||
| Diluted earnings (loss) per share | ( | ) | ( | ) | ||||||||
Condensed unaudited consolidated statement of operations for the six months ended June 30, 2025
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Cost of revenue | $ | $ | ( | ) | $ | |||||||
| Gross profit | ||||||||||||
| Income (loss) from operations | ||||||||||||
| Income (loss) before income taxes | ||||||||||||
| Provision for income taxes | — | |||||||||||
| Net income (loss) | ||||||||||||
| Basic earnings (loss) per share | ||||||||||||
| Diluted earnings (loss) per share | ||||||||||||
11
Unaudited accumulated deficit at the dates presented
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| December 31, 2024 | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||
| June 30, 2025 | ( | ) | ( | ) | ( | ) | ||||||
| December 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||
| March 31, 2026 | ( | ) | ( | ) | ( | ) | ||||||
| June 30, 2026 | ( | ) | ( | ) | ( | ) | ||||||
Unaudited total stockholders’ equity at the dates presented
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| December 31, 2024 | $ | $ | ( | ) | $ | |||||||
| March 31, 2025 | ( | ) | ||||||||||
| June 30, 2025 | ( | ) | ||||||||||
| December 31, 2025 | ( | ) | ||||||||||
| March 31, 2026 | ( | ) | ||||||||||
| June 30, 2026 | ( | ) | ||||||||||
Condensed unaudited consolidated cash flows for the six months ended June 30, 2026
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Inventories, net | ||||||||||||
| Net cash provided by operating activities | — | |||||||||||
| Cash at end of period | — | |||||||||||
Condensed unaudited consolidated cash flows for the six months ended June 30, 2025
| As Previously Reported | Restatement Adjustment | As Restated | ||||||||||
| Net income | $ | $ | $ | |||||||||
| Inventories, net | ( | ) | ( | ) | ||||||||
| Net cash used in operating activities | ( | ) | — | ( | ) | |||||||
| Cash at end of period | — | |||||||||||
(4) Revenues and Other Income
Revenues are recognized when control of the promised goods is transferred to customers, in an amount that reflects the consideration we expect to receive in exchange for those goods. When our ingredients and finished products are shipped, with control being transferred at the shipping point, this is the point in time at which we recognize the related revenue.
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. Customers’ deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned.
Contract balances at June 30, 2026, December 31, 2025, and December 31, 2024 are as follows:
| Accounts Receivable | Contract Liabilities | |||||||
| Balance, December 31, 2024 | $ | $ | ||||||
| Balance, December 31, 2025 | ||||||||
| Balance, June 30, 2026 | $ | |||||||
12
Revenue
recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $
As part of the sales process, it is common for the Company to receive customer deposits. These deposits are typically held for less than a year and do not result in a financing component to the sales. The customer deposits are recognized as revenue when the Company ships the finished goods to the customer. Revenue is recognized when the goods are shipped.
The Company will for some customers arrange for the shipping of the finished goods. Revenues and costs associated with the shipment of the finished goods are recorded separately within product revenue and cost of revenue, respectively, on the consolidated statement of operations. With regard to revenue recognition, shipping activities that occur prior to the customers’ obtaining control of the goods are not a promised service to the customer, but rather activities to fulfill the Company’s promise to transfer the goods. As such, these activities are not deemed a performance obligation requiring allocation of the transaction price. Similarly, shipping activities that occur after the customers’ obtaining control of the goods are, as a matter of policy, also not a promised service to the customer, but rather an activity to fulfill the Company’s promise to transfer the goods.
Other
revenue typically includes fees that our customers pay for various required laboratory tests, and may also include revenue from
technology license fees and paid development projects. Technology license fees and paid development projects are recognized over
time when the obligations under the agreed upon contractual arrangements are performed on our part. Other revenue recognized over
time was $
Accounts receivable are carried at the original invoice amount, less an allowance for expected credit losses. We estimate the allowance for credit losses based on a review of outstanding receivables, including the age of the receivables, historical collection experience, specific customer collectability considerations, current conditions, and other relevant factors. In estimating expected credit losses for current trade receivables arising from contracts with customers, we have elected the practical expedient under ASU 2025-05 and assume that current conditions as of the balance sheet date do not change over the remaining life of the receivables. Receivables are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received. Our typical credit terms are between thirty and sixty days from shipment and invoicing.
| June 30, 2026 | December 31, 2025 | |||||||
| Balance, beginning | $ | $ | ||||||
| Current period provisions | ||||||||
| Write offs | ( | ) | ( | ) | ||||
| Balance, ending | $ | $ | ||||||
(5) Earnings per Share
Basic
earnings per share is computed using the weighted-average number of common shares outstanding. Diluted earnings per share includes
weighted-average incremental shares from stock options when their effect is dilutive. Options to purchase approximately
13
Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2026 (as restated) | 2025 (as restated) | 2026 (as restated) | 2025 (as restated) | |||||||||||||
| Numerator: (in Thousands) | ||||||||||||||||
| Net income (loss) | ( | ) | $ | ( | ) | $ | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of basic shares outstanding | ||||||||||||||||
| Weighted average additional shares assuming conversion of in-the-money stock options to common shares and assumed repurchase of common shares by the Company | — | — | ||||||||||||||
| Weighted average number of diluted common shares outstanding | ||||||||||||||||
| Basic earnings per common share: | ||||||||||||||||
| Net income (loss) per share – basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted earnings per common share: | ||||||||||||||||
| Net income (loss) per share – diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
(6) Financial Instruments
We follow ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.
Our financial instruments include cash, accounts receivable, net, accounts payable and accrued expenses, along with any short-term and long-term borrowings as described in Note 7. The carrying values of cash, accounts receivable, net , and accounts payable and accrued expenses are reasonable estimates of their fair value due to the short-term nature of these accounts. The fair value of short-term and long-term debt approximates carrying value based on comparison of terms to similar debt offerings in the marketplace.
There were no financial instruments adjusted to fair value on June 30, 2026 and December 31, 2025.
14
(7) Related Party Notes and Lines of Credit
Notes and lines of credit consist of the following:
| As of June 30, 2026 | As of December 31, 2025 | |||||||||||||||||||
| Rate at June 30, 2026 | Total (as restated) | Outstanding Borrowed Balance | Total (as restated) | Outstanding Borrowed Balance | ||||||||||||||||
| Libertyville Bank & Trust (1) | % | — | $ | $ | — | |||||||||||||||
| Libertyville Bank & Trust (2) | % | — | — | |||||||||||||||||
| Beachcorp, LLC (3) | % | |||||||||||||||||||
| Beachcorp, LLC (4) | % | |||||||||||||||||||
| Strandler, LLC (5) | % | |||||||||||||||||||
| 1) |
| 2) |
| 3) |
| 4) |
15
| 5) |
The Company classifies the line of credit – accounts receivable as current because we are required to pay back the borrowings as cash is received from our customers. The Company’s remaining debt is presented within the Consolidated Balance Sheet as of June 30, 2026, and December 31, 2025, in accordance with the maturity dates in the financing agreements. The Company’s loan agreements with Strandler, LLC and Beachcorp, LLC currently are set to expire on April 30, 2027, which could become an operating risk if we are not able to refinance or extend the maturity dates. It is the Company’s intention to refinance or extend the maturity dates for the debt held with Strandler, LLC and Beachcorp, LLC.
Beachcorp, LLC, Strandler, LLC and Whitmore Holdings, LLC are affiliates of Mr. Bradford T. Whitmore, who beneficially owns a majority of the Company’s common stock and is the brother of Ms. R. Janet Whitmore, a director of the Company and the chair of the Company’s board of directors. The A/R Revolver Facility, the Inventory Facility and the New Term Loan are all secured by all the unencumbered assets of the Company and subordinated to the Company’s credit facility with Libertyville Bank & Trust.
Related party interest expense consists of the following:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Interest expense, related parties | $ | $ | $ | $ | ||||||||||||
Accrued interest consists of the following:
| As of | ||||||||
| June 30, 2026 | December 31, 2025 | |||||||
| Accrued interest expense, related parties | $ | $ | ||||||
Outstanding balances associated with related parties are as follows:
| June
30, 2026 |
December
31, 2025 |
|||||||
| Beachcorp, LLC | $ | $ | ||||||
| Strandler, LLC | ||||||||
16
(8) Inventories, net as Restated
Inventories consist of the following:
June 30, 2026 (as restated) | December
31, 2025 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Total Inventories, net | $ | $ | ||||||
(9) Significant Customers
We had three significant customers for the three and six months ended June 30, 2026, and 2025.
Revenues from these three customers, as a percentage of total Company revenue, was approximately:
| Three
months ended June 30, |
Six
months ended June 30, |
||||||||||||||||||
| Customer # | Product Category | 2026 | 2025 | 2026 | 2025 | ||||||||||||||
| 1 | Consumer Products | % | % | % | % | ||||||||||||||
| 2 | Consumer Products | % | % | % | % | ||||||||||||||
| 3 | Personal Care Ingredients | % | % | % | % | ||||||||||||||
| Total | % | % | % | % | |||||||||||||||
Accounts receivable balances for these three customers were approximately:
| As of June 30, | |||||||||||||||||||
| Customer # | Product Category | 2026 | 2025 | ||||||||||||||||
| 1 | Consumer Products | $ | $ | ||||||||||||||||
| 2 | Consumer Products | ( | ) | ||||||||||||||||
| 3 | Personal Care Ingredients | ||||||||||||||||||
| Total | |||||||||||||||||||
We
currently have exclusive supply agreements with BASF Corporation (“BASF”), a significant personal care ingredient
customer, that have contingencies outlined which could potentially result in the sale of production equipment from the Company
to the customer intended to provide capacity sufficient to meet the customer’s production needs. This outcome may occur
if we fail to meet certain performance requirements. In the event of an equipment sale, upon incurring a triggering event, the
equipment would be sold to the customer at the greater of
If a triggering event were to occur and BASF elected to proceed with the equipment sale mentioned above, we would lose a historically significant source of revenue.
(10) Business Segmentation and Geographical Distribution
The Company operates as a single business segment. The types of products and services offered by the sole reportable segment, which is the same as the Company as a whole, are discussed in Note 2. Since the Company operates as a single segment, there were no intra-entity sales or transfers.
17
The Company’s Chief Executive Officer is the Chief Operating Decision Maker. The Chief Operating Decision Maker assesses performance for the single segment and decides how to allocate resources based on gross profit and net income (loss), which are also reported in the statement of operations. The measure of segment assets is total assets reported on the balance sheet. The accounting policies of the sole segment are the same as those used in the consolidated financial statements and described in the restated annual financial statements referenced in Note 1.
The Chief Operating Decision Maker uses gross profit and net income to evaluate Company performance and allocate resources. Significant segment expenses are the same as those of the entity as a whole.
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
2026 (as restated) | 2025 (as restated) | 2026 (as restated) | 2025 (as restated) | |||||||||||||
| Total revenue | ||||||||||||||||
| Employee costs | ||||||||||||||||
| Contractors and professional services | ||||||||||||||||
| Materials and supplies | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Other (income) | — | ( | ) | — | ( | ) | ||||||||||
| Tax expense | ||||||||||||||||
| Facilities | ||||||||||||||||
| Shipping | ||||||||||||||||
| Testing | ||||||||||||||||
| IT services | ||||||||||||||||
| Insurance | ||||||||||||||||
| Manufacturing other expense | ||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Net Income (loss) | ( | ) | ( | ) | ||||||||||||
Revenue
from international sources approximated $
Our operations comprise a single business segment and all of our long-lived assets are located within the United States. We categorize our revenue stream into three main product categories, personal care ingredients, advanced materials and consumer products. The revenues for the three and six months ended June 30, 2026 and 2025 by category are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| Product Category | 2026 | 2025 | 2026 | 2025 | ||||||||||||
| Consumer Products | $ | $ | $ | $ | ||||||||||||
| Personal Care Ingredients | ||||||||||||||||
| Advanced Materials | ||||||||||||||||
| Total Sales | $ | $ | $ | $ | ||||||||||||
(11) Subsequent Events
On July 6, 2026, subsequent to June 30, 2026 and prior to the issuance of these unaudited consolidated condensed financial statements, Solésence, LLC (“Solésence”), a wholly owned subsidiary of Solésence, Inc. (the “Company”), entered into a Settlement Agreement and Release (the “Settlement Agreement”) with Refy Beauty Ltd (“Refy”). The Settlement Agreement resolves disputes relating to certain consumer care products previously sold by Solésence to Refy.
18
The
underlying dispute related to conditions that existed as of June 30, 2026. The Settlement Agreement provided additional evidence
regarding the measurement of the Company’s obligation associated with those conditions and, accordingly, was accounted for
as a recognized subsequent event under ASC Topic 855, Subsequent Events. As of June 30, 2026, the Company recognized a settlement
liability of $
The
Settlement Agreement provides for an aggregate settlement amount of £
If
the parties enter into such a commercial agreement during the exclusivity period, the remaining $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Solésence, Inc. (“Solésence”, “Company”, “we”, “our”, or “us”) is a science- and technology-driven consumer health company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused across beauty and health care markets. Through working with selected customers (“clients,” “brand partners”), we offer skin health and beauty products infused with SPF protection and other key health claims as fully finished goods for sun care, skin care, color cosmetics, and scalp applications. While a few legacy products remain, these areas are no longer considered strategic, and all, along with medical diagnostics, fall into the advanced materials product category.
Results of Operations (dollar amounts in thousands, except where otherwise noted)
Total revenue was $15,332 for the three months ended June 30, 2026, compared to $20,359 for the same period in 2025. Total revenue was $28,290 for the six months ended June 30, 2026, compared to $34,984 for the same period in 2025. Much of our revenue was from our three largest customers for the three- and six-month periods ended June 30, 2026 and 2025, respectively. This reflects sales to our largest customers for our consumer products and sales of APIs to our largest customer in personal care ingredients. This is the revenue breakdown, as a percentage of total revenue, from the customers referenced above during the three- and six-month periods ended June 30, 2026 and 2025, respectively:
| Three
months ended June 30, |
Six
months ended June 30, |
||||||||||||||||||
| Customer # | Product Category | 2026 | 2025 | 2026 | 2025 | ||||||||||||||
| 1 | Consumer Products | 58 | % | 33 | % | 48 | % | 23 | % | ||||||||||
| 2 | Consumer Products | 7 | % | 27 | % | 1 | % | 19 | % | ||||||||||
| 3 | Personal Care Ingredients | 1 | % | 13 | % | 13 | % | 12 | % | ||||||||||
| Total | 66 | % | 73 | % | 62 | % | 54 | % | |||||||||||
Product revenue, the primary component of our total revenue, was $15,286 for the three months ended June 30, 2026, compared to $20,261 during the same period of 2025, and was $28,205 for the six months ended June 30, 2026, compared to $34,836 during the same period of 2025. The decrease was due to a new customer launch and supply to their distribution channels, resulting in higher sales in 2025 when compared to 2026.
Other revenue was $46 and $85 for the three- and six-month periods ended June 30, 2026, compared to $98 and $148 for the same periods in 2025, respectively. Other revenue comprises primarily laboratory testing fees and developmental or licensing fees. The decrease was due to fewer tests being billed in 2026 compared to 2025.
19
Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue, as restated for each period, was $10,682 for the three months ended June 30, 2026, compared to $13,828 for the same period in 2025, and was $20,473 for the six months ended June 30, 2026, compared to $24,920 for the same period in 2025. The decrease in cost of revenue between 2026 and 2025 was primarily due to lower sales and improved production efficiency.
Operating efficiency, including the implementation of lean management practices, is a key area of focus for the company. Our company's growth in both complexity and scale since 2023 has required increases in our fixed manufacturing costs to ensure continued compliance with the requirements of manufacturing and distributing FDA-regulated products in an increasingly consumer-centric industry. These requirements, when combined with increases in scale and the number of customers, increase the variety and number of sku’s in our inventory. Improving overall equipment effectiveness and throughput through lean management will help the company maintain a competitive cost position and drive improvements in our operating margins as a percentage of total revenue. Selected automation will also enable the company to gain additional margin leverage as our business volume grows.
Research and development expense, which includes all expenses relating to the technology and advanced engineering groups, primarily consists of costs associated with the development of new technology platforms that are core to the company’s market competitiveness, along with the development of finished product formulations for skin care, color cosmetics, sun care, and scalp applications. Our patented technologies also create a competitive advantage for our customers, allowing them to differentiate their business in an increasingly competitive market and gain additional market share. Our technology position also contributes to improved customer retention and a stronger long-term supply position at favorable pricing for the company.
Research and development expense was $947 for the three months ended June 30, 2026, compared to $955 for the same period in 2025. For the six months ended June 30, 2026 research and development expense was $1,990, compared to $1,973 for the same period in 2025. Research and development costs remained flat from year to year.
Selling, general and administrative expense was $3,680 for the three months ended June 30, 2026, compared to $3,012 for the same period in 2025. For the six months ended June 30, 2026, selling, general and administrative expense was $6,479, compared to $5,120 for the same period in 2025. The increase reflects professional service costs and the Refy settlement expense recorded in June (see Note 11).
Inflation
In Company-wide operations, we believe inflation has not had a material effect on our operations or financial position for 2026, although we have seen increases in our costs. We expect supplier price increases and wage and benefit inflation, both of which represent a significant component of our costs of operations, may have a material effect on our operations and financial position in 2026 and beyond. We will apply our best efforts to pass through cost increases to our customers. If we are unable to pass through any increases due to contractual limitations or conditions in our markets specifically, this could reduce margins and net income.
Liquidity and Capital Resources
Cash, cash proceeds and use of cash for the six months ended June 30, 2026 and 2025, and year ended December 31, 2025 were:
| Six
months ended June 30, 2026 | Six
months ended June 30, 2025 | Year
ended December 31, 2025 | ||||||||||
| Total cash | $ | 1,046 | $ | 4,108 | $ | 1,288 | ||||||
| Cash provided by (used in) operating activities | 1,708 | (7,875 | ) | (8,567 | ) | |||||||
| Net cash used in investing activities | (997 | ) | (1,275 | ) | (2,143 | ) | ||||||
| Net cash (used in) provided by financing activities | (953 | ) | 11,849 | 10,589 | ||||||||
Net cash provided by operating activities during the six months ended June 30, 2026 was primarily attributable to a decrease in inventories and increases in accounts payable, accrued expenses and deferred revenue, partially offset by the net loss and an increase in accounts receivable, net. The updated inventory-costing corrections decreased six-month 2026 net income and increased the inventory adjustment in the operating cash-flow reconciliation by approximately $73 each compared with the original second-quarter report, with no change to net cash provided by operating activities. For the six months ended June 30, 2025, the corrections increased net income and reduced the inventory adjustment by approximately $805 each compared with the originally issued 2025 interim financial statements, with no change to net cash used in operating activities.
20
The net cash used in investing activities during the six months ended June 30, 2026 was primarily due to investments in new equipment.
The net cash used in financing activities during the six months ended June 30, 2026 was primarily due to reducing the outstanding related party debt.
Our actual future capital requirements in 2026 and beyond will depend on many factors, including customer acceptance of our current and potential future consumer products, APIs sold as ingredients in the skin health markets, medical diagnostics ingredients, and other engineered materials, applications, and products, continued progress in research and development activities and product testing programs, the magnitude of these activities and programs, and the costs necessary to increase and expand our manufacturing capabilities and to market and sell these products and ingredients. Other important issues that will drive future capital requirements will be the development of new markets and new customers as well as the potential for significant unplanned growth with existing customers. Depending on the success of certain projects, and conditions within the markets supplying labor and materials for capital equipment, we expect that capital spending relating to currently known capital needs for 2026 will be between $0.5 million and $1.5 million, to be funded by profit from operations, our existing loans and lines of credit, and possible new debt financing. If those projects are delayed or ultimately prove unsuccessful, or if we fail to be able to support the additional cost of funding them in the near term, we expect our capital expenditures may fall below the lower end of the range. Similarly, substantial success in business development projects may cause the actual 2026 capital investment to exceed the top of this range.
Additional Consideration
We had federal net operating loss carryforwards for tax purposes of approximately $38.5 million on December 31, 2025. Because the Company may experience “ownership changes” within the meaning of the U.S. Internal Revenue Code (“IRC”) in connection with any future equity offerings, future utilization of this carryforward may be subject to certain limitations as defined by the IRC. If not utilized, $30.7 million of this loss carryforward will expire between 2026 and 2038. Given changes to the IRC, net operating loss carryforwards generated after January 1, 2018 do not expire, therefore, $7.7 million in net operating losses generated since January 1, 2018 do not expire. We had Illinois net loss deduction carryforwards for tax purposes of approximately $18.4 million on December 31, 2025. Due to the provisions of Illinois Public Act 102-0669 signed November 16, 2021, Illinois net loss deductions expire between 2029 and 2039.
As of December 31, 2025, the Company determined that it was not subject to annual limitations under the Internal Revenue Code on the utilization of its net operating loss carryforwards. Because of uncertainty as to the amount of future taxable income that will be earned prior to expiration, we have concluded that some portion of the carryforwards may expire before becoming available to reduce income tax liabilities.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purposes of raising capital, incurring debt or operating our business. We do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources.
Safe Harbor Provision
We want to provide investors with more meaningful and useful information. As a result, this Quarterly Report on Form 10-Q (the “Form 10-Q”) contains and incorporates by reference certain “forward-looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements reflect our current expectations of the future results of our operations, performance, and achievements. Forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these statements by using words such as “anticipates”, “believes”, “estimates”, “expects”, “plans”, “intends” and similar expressions. These statements reflect management’s current beliefs and are based on information now available to it. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance, or achievements in 2026 and beyond to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties and factors include, without limitation: our ability to be consistently profitable despite the losses we have incurred since our incorporation; a decision by a customer to cancel a purchase order or supply agreement in light of our dependence on a limited number of key customers; the terms of our supply agreements with BASF which could trigger a requirement to sell equipment to that customer; our potential inability to obtain working capital when needed on acceptable terms or at all; our ability to obtain materials at costs we can pass through to our customers, including Rare Earth elements, specifically cerium oxide, as well as high purity zinc; uncertain demand for, and acceptance of, our Solésence products, and our advanced materials; our manufacturing capacity and product mix flexibility in light of customer demand; our limited marketing experience, including with our suite of Solésence products; changes in development and distribution relationships; the impact of competitive products and technologies; our dependence on patents and protection of proprietary information; our ability to maintain an appropriate electronic trading venue for our securities; the impact of any potential new governmental regulations, especially any new governmental regulations focusing on the processing, handling, storage or sale of nanomaterials, that could be difficult to respond to or costly to comply with; business interruptions due to unexpected events or public health crises, including viral pandemics such as COVID-19; and the resolution of litigation or other legal proceedings in which we may become involved. In addition, our forward-looking statements could be affected by general industry and market conditions and growth rates. Readers of this Quarterly Report on Form 10-Q should not place undue reliance on any forward-looking statements. Except as required by federal securities laws, we undertake no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.
21
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We are responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosures. It should be noted that in designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and that our management necessarily was required to apply its judgment regarding the design of our disclosure controls and procedures.
In connection with the restatement of the Company’s previously issued consolidated financial statements included in this Form 10-Q/A, management, with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), reevaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2026. Based on that reevaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2026 because of the material weaknesses in internal control over financial reporting described below. This reevaluation reaffirms the conclusion in our originally filed Form 10-Q that disclosure controls and procedures were not effective as of June 30, 2026.
A material weakness exists when one or more deficiencies in internal control over financial reporting create a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis.
Material Weakness in Inventory Costing
The Company did not design and maintain effective controls over the determination, accumulation, allocation, review and application of labor and manufacturing overhead costs capitalized into inventory.
Specifically, the Company did not establish and maintain effective controls to provide for:
| ● | Identification and capitalization of only eligible inventory acquisition and production costs; |
| ● | Allocation of variable production overhead based on actual production activity; |
| ● | Adjustment of standard or budgeted cost amounts to ensure those amounts reasonably approximated actual cost; |
| ● | Sufficient documentation supporting cost pools, burden rates, allocation methodologies, and significant assumptions; and |
| ● | An effective management review of the completeness, accuracy, and appropriateness of the inventory-costing calculation. |
These deficiencies, considered in combination, constituted a material weakness that existed as of June 30, 2026. The material weakness resulted in errors affecting inventory, cost of revenue and related financial statement accounts and disclosures. The errors are corrected in the restated unaudited consolidated financial statements included in this Form 10-Q/A. See the restatement disclosures in the notes to those financial statements.
Material Weakness in Oversight and Review of Financial Reporting and Restatement Activities
The Company did not design and maintain effective supervisory and review controls over the financial reporting process, including the identification, evaluation, correction, and disclosure of accounting errors and restatements.
Specifically, the Company did not establish and maintain effective controls to:
| ● | Ensure that personnel and advisors responsible for performing, reviewing, and overseeing key accounting and financial reporting controls possess the appropriate level of knowledge and experience, including sufficient SEC reporting, financial reporting, and technical accounting expertise, to effectively execute those controls and address necessary accounting matters and financial statement corrections; |
22
| ● | Ensure that accounting analyses, methodologies, assumptions, allocations, and conclusions used in restatement calculations were sufficiently reviewed before being finalized; |
| ● | Verify the completeness, accuracy, consistency, and supportability of adjustments recorded in connection with the restatement; |
| ● | Ensure that, following the identification of a restatement, revised financial information is complete and accurate and is subject to appropriate accounting analysis, supporting documentation, and review procedures sufficient to prevent or detect material misstatements; and |
| ● | Evaluate whether accounting positions and allocation methodologies were consistently and accurately applied across all affected reporting periods. |
As a result of these deficiencies, management did not timely identify errors and unsupported assumptions within the restatement calculations, including errors in the allocation of departmental costs among inventory and cost-of-sales cost pools, inconsistencies in the application of methodologies across reporting periods, and adjustments that lacked sufficient support under accounting principles generally accepted in the United States of America (U.S. GAAP).
The material weakness also impacted the Company's ability to complete and file corrected financial information in a proficient manner. There is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements would not be prevented or detected on a timely basis.
Based on this reassessment and the COSO criteria, management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2025 because of the material weaknesses described above. This conclusion supersedes management’s conclusion in the originally filed Form 10-Q that internal control over financial reporting was effective as of June 30, 2026.
Inventory Costing Remediation Activities Subsequent to June 30, 2026
The Company intends to implement remediation measures that include:
| ● | Reassessing the Company’s inventory-costing methodologies and formalizing the policy; |
| ● | Evaluating and refining labor and manufacturing overhead cost pools, allocation practices, methodologies, and assumptions; |
| ● | Strengthening documentation supporting burden rates, inventory valuation and costing activities; |
| ● | Establishing periodic reassessment requirements and comparisons of actual manufacturing costs with capitalized amounts; |
| ● | Enhancing management review controls over inventory accounting and valuation, including defined review thresholds and documentation requirements; |
| ● | Strengthening technical cost-accounting and U.S. GAAP expertise through training, additional resources and/or external specialists; and |
| ● | Increasing oversight by personnel with appropriate accounting and cost-accounting expertise. |
Financial Reporting Oversight and Review Remediation Activities Subsequent to June 30, 2026
The Company intends to implement remediation measures that include:
| ● | Enhancing executive management oversight of significant accounting matters; |
| ● | Enhancing controls over the review and oversight of third-party specialists and advisors engaged to assist with infrequent transactions, including accounting corrections and related financial reporting matters; |
| ● | Implementing additional review controls over technical accounting analyses and application of U.S. GAAP, supporting calculations and burden rates, significant estimates and allocations, and quarterly adjustments of inventory to actual costs; |
| ● | Increasing the involvement of personnel with appropriate financial reporting, SEC reporting, and technical accounting expertise; and |
| ● | Evaluating staffing levels, competencies, and organizational structure within the finance and accounting function to ensure adequate resources are available to support financial reporting obligations. |
Neither material weakness will be considered remediated until the applicable controls have been designed and implemented, have operated for a sufficient period, and management has concluded through testing that they are operating effectively. Correction of the financial statement errors does not, by itself, remediate either material weakness.
Changes in Internal Control Over Financial Reporting
The Company’s management, including the Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), confirm that there was no change in the Company’s internal control over financial reporting during the period ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 6. Exhibits
| Exhibit 31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. | |
| Exhibit 31.2 | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act. | |
| Exhibit 32 | Certification of the Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
| |
| Exhibit 101 | The following materials from Solésence, Inc.’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2026, formatted in XBRL (Extensible Business Reporting Language): (1) the Balance Sheets, (2) the Statements of Operations, (3) the Statements of Shareholders Equity, (4) the Statements of Cash Flows, and (5) the Notes to Unaudited Consolidated Condensed Financial Statements. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SOLÉSENCE, INC. | |||
| Date: November 10, 2026 | By: | /s/ KEVIN CURETON | |
| Kevin Cureton | |||
| President and Chief Executive Officer | |||
| Principal Executive Officer | |||
| SOLÉSENCE, INC. | |||
| Date: November 10, 2026 | By: | /s/ LAURA RIFFNER | |
| Laura Riffner | |||
| Chief Financial Officer | |||
| Principal Financial Officer | |||