SOLESENCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 (consisting of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of our financial position and operating results for the interim periods presented. All statements include the results from both Solésence, Inc. and our wholly-owned subsidiary, Solésence, LLC. Operating results for the three and nine months ended September 30, 2025, are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

These financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission.

(2)Description of Business

Solésence, Inc. (“Solésence”, “Company”, “we”, “our”, or “us”) is a science-driven company which, along with its wholly owned subsidiary, Solésence, LLC (our “Solésence beauty science subsidiary”), is focused in various beauty- and life-science markets. Using consumer health as our end-goal and science and innovation to guide the path, skin health and medical diagnostics combined currently make up the majority of our business and drive our forward growth strategy. We offer engineered materials, formulation development and commercial manufacturing through an integrated family of technologies. Our expertise in materials engineering allows us to effectively coat and disperse particles on a nano and “non-nano” scale for use in a variety of skin health markets, including for use in sunscreens as active ingredients and as fully developed prestige skin care and cosmetics products, marketed and sold through our Solésence beauty science subsidiary. In terms of our life sciences focus, we have seen demand decrease for our medical diagnostics ingredients. Additionally, we continue to sell products in legacy markets, including architectural coatings, industrial coating applications, abrasion-resistant additives, plastics additives, and surface finishing technologies (polishing) applications, all of which, along with medical diagnostics, fall into the advanced materials product category.

We target markets, primarily related to skin health products and ingredients, as well as diagnostic life sciences ingredients where we believe our materials and products offer practical and competitive minerals-based solutions. We traditionally work closely with current customers in these target markets to identify their material and performance requirements. We market our materials to various end-use applications manufacturers, and our Solésence® products to cosmetics and skin care brands.

Recently developed technologies have made certain new products possible and opened potential new markets. 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 three proprietary technologies — Original Active Stress Defense™, Kleair™, and Bloom™ — all three of which either utilize a unique and proprietary, mineral-based technology or work synergistically with one of our unique and proprietary, mineral-based technologies to improve performance and/or aesthetics. 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 to manufacture and sell 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 materials to customers overseas and 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.

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)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. Cash payments to customers are classified as reductions of revenue in our statements of operations. For select customers the Company may pay volume rebates which are variable in nature due to the amount the select customer will take. During the three and nine months ended September 30, 2025, customers earned a volume rebate of $18,000 and $65,000 respectively. For the year ended December 31, 2024, one customer earned a volume rebate of $35,000.

Contract balances at September 30, 2025, December 31, 2024, and December 31, 2023 are as follows:

Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period was $33 and $1,279 for the three months ended September 30, 2025 and 2024, respectively, and $5,028 and $2,882 for the nine months ended September 30, 2025 and 2024, respectively.

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 $64 and $81, for the three months ended September 30, 2025 and 2024, respectively, and $212 and $301 for the nine months ended September 30, 2025 and 2024, respectively.

Trade accounts receivable are carried at original invoice amount less an estimate made for future credit losses based on a review of all outstanding amounts on a monthly basis, and written off when deemed uncollectible. We determine the allowance for credit losses by identifying troubled accounts and by using historical experience applied to an aging of accounts, as well as expected losses based on the current and anticipated macroeconomic environment. 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.

(4)Earnings per Share

Options to purchase approximately 2,466,956 of common stock that were outstanding as of September 30, 2025 were excluded in the computation of diluted earnings per share for the three months ended September 30, 2025 as it would be anti-dilutive. Options to purchase approximately 2,476,123 shares of common stock that were outstanding as of September 30, 2025 were included in the computation of diluted earnings per share for the nine months ended September 30, 2025. Options to purchase approximately 2,062,000 of common stock that were outstanding as of September 30, 2024 were included in the computation of diluted earnings per share for the three months ended September 30, 2024. Options to purchase approximately 1,947,000 shares of common stock that were outstanding as of September 30, 2024 were included in the computation of diluted earnings per share for the nine months ended September 30, 2024.

Earnings applicable to common stock and common stock shares used in the calculation of basic and diluted earnings per share are as follows:

(5)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 6. 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 offering in the marketplace.

There were no financial instruments adjusted to fair value on September 30, 2025 and December 31, 2024.

(6)Related Party Notes and Lines of Credit

Notes and lines of credit consist of the following:

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 condensed consolidated balance sheet as of September 30, 2025, and December 31, 2024, in accordance with the maturity dates in the financing agreements.

Beachcorp, LLC and Strandler, 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:

Outstanding balances associated with related parties are as follows:

(7)Inventories, net

Inventories consist of the following:

(8)Capital Stock

As of September 30, 2025, and December 31, 2024, we had 24,088 authorized but unissued shares of preferred stock.

Pursuant to the Securities Purchase Agreement executed on March 1, 2024, the Company issued to Strandler 15,000 shares of the Company’s Series X Preferred Stock (the “Series X Preferred Stock”) at a purchase price per share of $400, for total consideration of $6,000,000, in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. On June 20, 2024, Strandler converted its 15,000 shares of Series X Preferred Stock to 15,000,000 shares of Common Stock.

(9)Significant Customers

We had three significant customers for the three and nine months ended September 30, 2025, and 2024.

Revenues from these three customers, as a percentage of total Company revenue, was approximately:

Accounts receivable balances for these three customers were approximately:

We currently have exclusive supply agreements with BASF Corporation (“BASF”), our largest 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 either 115% of the equipment’s net book value or the greater of 30% of the original book value of such equipment, and any associated upgrades to it, or 115% of the equipment’s net book value, depending on the equipment and related products.

If a triggering event were to occur and BASF elected to proceed with the equipment sale mentioned above, we would lose a significant source of revenue.

(10)Business Segmentation and Geographical Distribution

The Company operates as a single business segment, in which the factors used to make this determination include differences in products, services, geographical areas, regulatory environment, and other such criteria considered for the appropriateness of aggregation. The types of products and services for which the sole reportable segment, which is the same as the Company as a whole, offered by the Company are discussed in Note 2. Since the Company operates as a single segment, there were no intra-entity sales or transfers.

The Chief Operating Decision Maker assesses performance for the single segment and decides how to allocate resources based on net income and gross profit that also is reported on the condensed consolidated statement of operations as net income. The measure of segment assets is reported on the condensed consolidated balance sheet as total assets. The accounting policies of the sole segment are the same as those described in the summary of significant accounting policies in our most recently issued Form 10-K for the year ended December 31, 2024.

The Chief Operating Decision Maker uses gross profit and net income to evaluate Company performance and in what way to allocate resources. Significant segment expenses, which are the same as the entity as a whole, are as follows:

Revenue from international sources approximated $1,656 and $735 for the three months ended September 30, 2025 and 2024, respectively, and $5,169 and $1,490 for the nine months ended September 30, 2025 and 2024, respectively. As part of our revenue from international sources, we recognized approximately $1,217 and $317 for the three months ended September 30, 2025 and 2024, respectively, and $3,326 and $566 for the nine months ended September 30, 2025 and 2024, respectively in product revenue from companies in the United Kingdom.

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 nine months ended September 30, 2025 and 2024 by category are as follows:

(11)Contingencies

In June 2025, the Company received a payment of $1,729 from the 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 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequent legislation.

In prior periods, the Company concluded that recognition of the ERC as an asset and related income was not appropriate under U.S. GAAP because realization was not considered probable. Specifically, due to uncertainties regarding the timing, amount, and ultimate approval of the credit by the Internal Revenue Service (IRS), the ERC was evaluated as a gain contingency in accordance with ASC 450-30,Contingencies – Gain Contingencies. As a result, no asset or income was recorded, and no related disclosure was made in prior filings.

In June of 2025, the contingency was resolved with the receipt of payment of $1,729 relating to the ERC amount and $272 of related interest. Given that the payments exceeded the amount the Company requested, the Company chose to recognize $1,234 of the ERC as identified, and $194 in related interest income, creating a reserve for $572, representing the discrepancy in ERC payment and estimated related interest. The $1,234 ERC amount was included inother income, net and $194 of interest income netted against interest expense within the condensed consolidated statements of operations for the quarter ended September 30, 2025. While management has no indication of a pending review, the IRS has stated that they reserve the right to audit ERC payments for several years after they were requested. The $572 is a liability contingent upon the window closing for ERC audits which we estimate will be in 2029 and is currently included inaccrued expenses.