SOLESENCE, INC.

Previous wording

Solésence, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence consumer products subsidiary”), is a leading innovator in scientifically-driven health care solutions across beauty and life science categories, protecting skin from environmental aggressors and enhancing the aesthetic appeal of healthy products. Skin health, addressed through both our consumer products and our Active Pharmaceutical Ingredients (“APIs”), currently make up the great majority of our business, with additional revenue being generated from other legacy advanced materials applications. The Company was incorporated in Illinois on November 25, 1989 and became a Delaware corporation during November 1997. Our common stock now trades on Nasdaq under the symbol SLSN after previously trading under the NANX ticker on the OTCQB marketplace. We have development and application laboratories, and manufacturing capacity in three locations in the Chicago, Illinois area.

Current wording

Solésence, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence consumer products subsidiary”), is a leading innovator in scientifically-driven health care solutions across beauty and life science categories, protecting skin from environmental aggressors and enhancing the aesthetic appeal of healthy products. Skin health, addressed through both our consumer products and our Active Pharmaceutical Ingredients (“APIs”), currently make up the great majority of our business, with additional revenue being generated from other legacy advanced materials applications. The Company was incorporated in Illinois on November 25, 1989 and became a Delaware corporation during November 1997. Our common stock now trades on Nasdaq under the symbol SLSN after previously trading under the NANX ticker on the OTCQB marketplace. We have development and application laboratories, and manufacturing capacity in two locations in the Chicago, Illinois area.

Previous wording

Total revenue increased to $20,359 for the three months ended June 30, 2025, compared to $13,046 for the same period in 2024. Total revenue increased to $34,984 for the six months ended June 30, 2025, compared to $22,914 for the same period in 2024. Much of our revenue was from our three largest customers for the three- and six-month periods ended June 30, 2025, one of which was a new customer, and two of our three largest customers for the same period in 2024. 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 period ended June 30, 2025, and 2024 respectively:

Current wording

Total revenue decreased to $14,597 for the three months ended September 30, 2025, compared to $16,866 for the same period in 2024. Total revenue increased to $49,581 for the nine months ended September 30, 2025, compared to $39,780 for the same period in 2024. Much of our revenue was from our three largest customers for the three- and nine-month periods ended September 30, 2025, one of which was a new customer, and two of our three largest customers for the same period in 2024. 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 nine-month period ended September 30, 2025, and 2024 respectively:

Previous wording

Product revenue, the primary component of our total revenue, increased to $20,261 for the three months ended June 30, 2025, compared to $12,923 during the same period of 2024, and increased to $34,836 for the six months ended June 30, 2025, compared to $22,694 during the same period of 2024. The three-month product revenue was due to higher sales in our consumer products and personal care ingredients product categories, and lower sales in the advanced materials product category.

Current wording

Product revenue, the primary component of our total revenue, decreased to $14,533 for the three months ended September 30, 2025, compared to $16,785 during the same period of 2024, and increased to $49,369 for the nine months ended September 30, 2025, compared to $39,479 during the same period of 2024. The three-month product revenue decrease was due lower sales in the personal care ingredients and advanced materials product categories, partially offset by to higher sales in our consumer products product category. The nine-month product revenue increase was due to higher sales in our consumer products product category, partially offset by lower sales in the personal care ingredients and advanced materials product categories.

Previous wording

Other revenue decreased to $98 and $148 for the three- and six-month periods ended June 30, 2025, compared to $123 and $220 for the same periods in 2024, respectively. Other revenue is comprised primarily of fees for laboratory testing and developmental or licensing fees.

Current wording

Other revenue decreased to $64 and $212 for the three- and nine-month periods ended September 30, 2025, compared to $81 and $301 for the same periods in 2024, respectively. Other revenue is comprised primarily of fees for laboratory testing and developmental or licensing fees.

Previous wording

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $14,482 for the three months ended June 30, 2025, compared to $9,306 for the same period in 2024, and increased to $25,725 for the six months ended June 30, 2025, compared to $15,594 for the same period in 2024. The increase for the three- and six-month periods in the cost of revenue was primarily driven by increased volume, manufacturing operating inefficiencies, and facilities improvements. While we typically pass through costs to our customers, we sometimes cannot pass through 100% of pricing increases on raw materials, and even with pass throughs, our gross margin percentage is negatively impacted by higher material costs. The Company continues to monitor the potential impact of the new tariffs on our materials sourced internationally.

Current wording

Cost of revenue generally includes costs associated with commercial production and customer development arrangements. Cost of revenue increased to $11,227 for the three months ended September 30, 2025, compared to $10,764 for the same period in 2024, and increased to $36,952 for the nine months ended September 30, 2025, compared to $26,358 for the same period in 2024. The increase for the nine-month period in the cost of revenue was primarily driven by increased volume, manufacturing operating inefficiencies, and facilities improvements. The increase for the three-month period in the cost of revenue was primarily driven by manufacturing operating inefficiencies, and facilities improvements. While we typically pass through costs to our customers, we sometimes cannot pass through 100% of pricing increases on raw materials, and even with pass throughs, our gross margin percentage is negatively impacted by higher material costs. The Company continues to monitor the potential impact of the new tariffs on our materials sourced internationally.

Previous wording

Capacity is a key area of focus to increase throughput first, followed quickly by increased cost efficiency once we can achieve greater scale. Our planning has had us adding to our current fixed manufacturing cost structure through 2025 to accommodate additional growth, and to build a better base for further growth beyond that level. The extent to which margins grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to cut costs and pass commodity market-driven raw materials increases on to customers, and the speed and efficiency with which we are able to scale up production for our consumer products. We expect that, as product revenue volume increases, our fixed manufacturing costs will be more efficiently absorbed, which should lead to increased margins as we grow. Our most critical operational issue today is reducing controllable variable product manufacturing costs.

Current wording

Capacity is a key area of focus to increase throughput, followed quickly by increased cost efficiency once we can achieve greater scale. Our planning has had us adding to our current fixed manufacturing cost structure through 2025 to accommodate additional growth, and to build a better base for further growth beyond that level. The extent to which margins grow, as a percentage of total revenue, will be dependent upon revenue mix, revenue volume, our ability to cut costs and pass commodity market-driven raw materials increases on to customers, and the speed and efficiency with which we are able to scale up production for our consumer products. We expect that, as product revenue volume increases, our fixed manufacturing costs will be more efficiently absorbed, which should lead to increased margins as we grow. Our most critical operational issue today is reducing controllable variable product manufacturing costs.

Previous wording

Research and development expense increased to $955 for the three months ended June 30, 2025, compared to $864 for the same period in 2024. For the six months ended June 30, 2025 research and development expense increased to $1,973 compared to $1,776 for the same period in 2024. The increase is due in large part to increased salaries in 2025 compared to 2024.

Current wording

Research and development expense increased to $1,082 for the three months ended September 30, 2025, compared to $970 for the same period in 2024. For the nine months ended September 30, 2025 research and development expense increased to $3,055 compared to $2,746 for the same period in 2024. The increase is due in large part to increased salary and benefit costs in 2025 compared to 2024.

Previous wording

Selling, general and administrative expense increased to $3,012 for the three months ended June 30, 2025, compared to $1,829 for the same period in 2024. For the six months ended June 30, 2025, selling, general and administrative expense increased to $5,120, compared to $3,388 for the same period in 2024. The increase is due to an increase in the allowance for credit loss, increased legal costs, costs related to our uplisting to NASDAQ, and increased employee-related costs in 2025 when compared to 2024.

Current wording

Selling, general and administrative expense increased to $3,069 for the three months ended September 30, 2025, compared to $1,934 for the same period in 2024. For the nine months ended September 30, 2025, selling, general and administrative expense increased to $8,188, compared to $5,321 for the same period in 2024. The increase is due to an increase in legal costs, increase in the allowance for credit loss, increased employee-related costs, severance costs, and costs related to our uplisting to NASDAQ in 2025 when compared to 2024.

Previous wording

For the three- and six-month periods ended June 30, 2025, other income included the adjusted payment of $1,234 relating to funds received from U.S. Department of the Treasury under the Employee Retention Credit (ERC) program, along with $272 in interest related to the delayed payment. The ERC is a refundable payroll tax credit made available under the CARES Act and subsequent legislation. Interest income included interest paid relating to this amount of $194 for the three- and six-month periods ended June 30, 2025. The ERC payments and related interest did not apply to 2024.

Current wording

For the nine-month period ended September 30, 2025, other income included the adjusted payment of $1,234 relating to funds received from U.S. Department of the Treasury under the Employee Retention Credit (ERC) program, along with $272 in interest related to the delayed payment. The ERC is a refundable payroll tax credit made available under the CARES Act and subsequent legislation. Interest income included interest paid relating to this amount of $194 for the nine-month period ended September 30, 2025. The ERC payments and related interest did not apply to 2024.

Previous wording

Cash, cash proceeds and use of cash for the six months ended June 30, 2025, 2024, and year ended December 31, 2024 were:

Current wording

Cash, cash proceeds and use of cash for the nine months ended September 30, 2025, 2024, and year ended December 31, 2024 were:

Previous wording

The net cash used in operating activities during the six months ended June 30, 2025 was primarily due to increased accounts receivable, net and decreased accounts payable and deferred revenue, offset by net income and increased accrued expenses. Net cash used in investing activities was attributable to expenditures on capital equipment for all periods presented above. The net cash provided by financing activities was attributable to the increased use of debt.

Current wording

The net cash used in operating activities during the nine months ended September 30, 2025 was primarily due to increased accounts receivable, net and decreased accounts payable and deferred revenue, offset by net income, decrease in inventory and increased accrued expenses. Net cash used in investing activities was attributable to expenditures on capital equipment for all periods presented above. The net cash provided by financing activities was attributable to the increased use of debt.

Previous wording

Our actual future capital requirements in 2025 and beyond will depend on many factors, including customer acceptance of our current and potential future consumer products, APIs sold as ingredients in to 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 2025 will be between $1 million and $3 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 2025 capital investment to exceed the top of this range.

Current wording

Our actual future capital requirements in 2025 and beyond will depend on many factors, including customer acceptance of our current and potential future consumer products, APIs sold as ingredients in to 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 2025 will be between $0.1 million and $1 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 2025 capital investment to exceed the top of this range.