Overview

Solésence is a health-oriented, science-driven company focused on various skin health and beauty markets. The company’s primary products are fully developed prestige skin care formulations with mineral-based UV protection enabled by their proprietary Active Pharmaceutical Ingredients (APIs). These APIs are also marketed for sale to manufacturers of other skin health products, including sunscreens and daily care products. Solésence also continues to sell products in legacy markets such as medical diagnostics, architectural coatings, industrial coating applications, abrasion-resistant additives, and plastics additives applications.

Critical Accounting Estimates

Solésence monitors the value of its inventory for the effects of aging, obsolescence, and seasonality. The company adjusts inventory valuation when management determines there is potential for obsolete materials. In 2024, Solésence applied a $1,987,000 inventory reserve in anticipation of some materials nearing expiration, becoming obsolete, or no longer being used regularly.

Certain assumptions are necessary to assess the impact of risks and uncertainties on Solésence’s financial information, such as cash flow projections, availability of capital, and expected compliance with contractual commitments. While costs have continued to increase on an inflationary basis, the company believes it will be able to offset much of this cost through greater production efficiencies and increased pricing.

Results of Operations

Years Ended December 31, 2024 and 2023

Total revenue increased to $52,347,000 in 2024, compared to $37,297,000 in 2023. This was primarily due to an increase in revenue from Solésence’s consumer products, partially offset by decreased personal care ingredients and advanced materials products.

Current Significant Customers

Cost of revenue increased to $36,159,000 in 2024, compared to $29,472,000 in 2023, primarily driven by higher materials and direct labor costs related to the increased sales volume. Solésence expects to continue new materials development and dispersion technologies for personal care applications and its formulated Solésence products during 2025 and beyond.

Research and development expense remained the same in 2024 at $3,837,000, with higher labor costs offset by lower legal and consulting costs. Solésence expects research and development expenses to increase slightly in 2025 depending on growth in its Solésence line of products and related technologies.

Selling, general and administrative expense decreased to $7,219,000 in 2024, compared to $7,534,000 in 2023, largely due to a decrease in legal costs. Solésence expects 2025 expenses in this area to be slightly higher due to expanding parts of its administrative functions.

Interest expense decreased to $670,000 in 2024, compared to $838,000 in 2023, due to lower interest rates and decreased usage of debt facilities.

Solésence believes inflation has not had a material effect on its operations or financial position for 2024, but expects supplier price increases and wage and benefit inflation may have a material effect on its operations and financial position in 2025 and beyond.

Liquidity and Capital Resources

Cash provided by operating activities increased by $3,977,000 in 2024 compared to 2023, mainly due to the company earning $4,235,000 in net income in 2024 compared to a $4,390,000 net loss in 2023. Cash capital expenditures amounted to approximately $4,558,000 and $1,051,000 for the years ended December 31, 2024 and 2023, respectively.

Solésence has a credit agreement with Libertyville to support its obligations under its leased manufacturing and warehouse space, with no outstanding borrowings as of December 31, 2024. The company also has various loan agreements with related parties to support its working capital needs, including an asset-based revolving loan facility, an inventory facility, and a term loan.

On March 1, 2024, Solésence entered into a Securities Purchase Agreement with Strandler, LLC, an affiliate of the company’s controlling shareholder, to issue 15,000 shares of Series X Preferred Stock for $6,000,000. The preferred stock is convertible into common stock, subject to certain conditions.

Solésence’s future capital requirements will depend on many factors, including customer acceptance of its products, progress in research and development, and the costs necessary to increase and expand its manufacturing capabilities. The company expects capital spending relating to currently known capital needs for 2025 to be between $6 million and $8 million, to be funded by profit from operations, existing loans and lines of credit, and possible new financing.

Solésence has federal and Illinois net operating loss carryforwards that may be subject to certain limitations, and the company has concluded that it is likely some portion of these carryforwards will expire before ultimately becoming available to reduce income tax liabilities.