SOLESENCE, INC. quarterly report, Q2 FY2026

Solésence, Inc. (SLSN) - Q2 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026. Solésence, Inc. is a science-driven consumer health company focused on skin health products utilizing proprietary technologies (Active Stress Defense™, Blüm™, Chromalüm™, WHSPR™) for sun care, skin care, and cosmetics. The company operates as a single segment and is classified as a smaller reporting company. As of August 19, 2026, there were 70,647,045 shares of common stock outstanding.

Key Financial Metrics

Metric (in thousands) Q2 2026 Q2 2025 (Restated) YTD 2026 YTD 2025 (Restated)
Total Revenue $15,332 $20,359 $28,290 $34,984
Gross Profit $4,748 $6,443 $7,890 $10,089
Gross Margin 31.0% 31.6% 27.9% 28.8%
Net Income (Loss) $(158) $3,233 $(1,120) $3,577
Operating Cash Flow (YTD) $1,708 $(7,875) $1,708 $(7,875)
Cash and Equivalents $1,046 $4,108 $1,046 $4,108
Total Debt (Related Party) $14,287 $15,267 $14,287 $15,267

Note: 2025 figures have been restated due to inventory accounting errors (see Material Changes).

Material Changes and Restatement

Restatement of Prior Periods: The company identified errors in historical inventory accounting regarding the allocation of labor and overhead costs. Consequently, financial statements for periods ending through March 31, 2026, have been restated.

  • Inventory Impact: Inventories were overstated. As of December 31, 2025, inventory was reduced by $3,548,000.
  • Profit Impact: Cost of revenue was adjusted, resulting in higher reported net income for Q2 2025 (restated from $2,667k to $3,233k) and Q1 2026 (restated loss from $(766)k to $(962)k).

Operational Changes:

  • Revenue Decline: Revenue decreased 24.7% in Q2 2026 compared to the prior year, primarily due to the completion of a new customer launch in 2025 that drove higher sales in the prior period.
  • Customer Concentration: Three customers accounted for 66% of revenue in Q2 2026. Customer #1 (Consumer Products) grew its share from 33% in 2025 to 58% in 2026.
  • Settlement Liability: A $938,000 settlement liability was recognized in Q2 2026 related to a dispute with Refy Beauty Ltd, classified as a general and administrative expense.

Outlook, Risks, and Contingencies

Management Commentary:

  • Liquidity: The company generated positive operating cash flow of $1.7 million YTD 2026, a significant improvement over the prior year. Capital expenditures for 2026 are expected to range between $0.5 million and $1.5 million.
  • Debt Structure: The company relies heavily on related-party debt (Beachcorp, LLC and Strandler, LLC) totaling approximately $14.3 million. These facilities mature in April 2027. A waiver was obtained in August 2026 regarding inventory overstatement breaches under the Inventory Facility.

Risks and Contingencies:

  • Internal Controls: The company disclosed a material weakness in internal controls over financial reporting related to inventory costing. Remediation is underway.
  • Customer Risk: Exclusive supply agreements with BASF contain contingencies that could force the sale of production equipment if performance requirements are not met.
  • Legal: The Refy Beauty settlement requires payments of $938,000 over 12 months, though the final six payments may be credited against future product purchases if a new commercial agreement is reached.

Investor Verification Checklist

  • Restatement Details: Verify the full impact of the inventory accounting restatement on future quarters and the timeline for filing amended 10-K and 10-Q reports.
  • Debt Renewal: Confirm the company's ability to refinance or extend the $14.3 million in related-party debt maturing in April 2027.
  • Customer Concentration: Assess the stability of Customer #1, which now represents 58% of quarterly revenue.
  • Internal Controls: Monitor progress on remediation of the material weakness regarding inventory cost allocation.
  • Refy Settlement: Track whether the exclusivity period results in a new commercial agreement to offset the remaining settlement payments.