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 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 audited financial statements and notes thereto for the year ended December 31, 2025, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission.

(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.

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.

Contract balances at June 30, 2026, December 31, 2025, and December 31, 2024 are as follows:

Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period was$306 and$4,206 for the three months ended June 30, 2026 and 2025, respectively, and$630 and$7,498 for the six months ended June 30, 2026 and 2025, 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 $46 and $98 for the three months ended June 30, 2026 and 2025, respectively, and $85 and $148 for the six months ended June 30, 2026 and 2025, respectively.

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.

(4)Earnings per Share

Options to purchase 1,074,074 and 1,082,666 shares of common stock that were outstanding as of June 30, 2026 were included in the computation of diluted earnings per share for the three and six months ended June 30, 2026, respectively. Options to purchase approximately 2,348,780 and 2,345,901 shares of common stock that were outstanding as of June 30, 2025 were included in the computation of diluted earnings per share for the three and six months ended June 30, 2025, respectively.

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 offerings in the marketplace.

There were no financial instruments adjusted to fair value on June 30, 2026 and December 31, 2025.

(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 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, LL

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:

Accrued interest consists of the following:

Outstanding balances associated with related parties are as follows:

(7)Inventories, net

Inventories consist of the following:

(8)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:

Accounts receivable balances for these three customers were approximately:

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 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 historically significant source of revenue.

(9)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 role of Chief Operating Decision Maker for the Company is Chief Executive Officer. 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 statement of operations as net income. The measure of segment assets is reported on the 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 Note 2 of the 2025 Form 10-K.

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 $477 and $2,519 for the three months ended June 30, 2026 and 2025, respectively, and $1,391 and $3,512 for the six months ended June 30, 2026 and 2025, respectively. As part of our revenue from international sources, we recognized approximately $244 and $245 for the three months ended June 30, 2026 and 2025, respectively, and $857 and $593 for the six months ended June 30, 2026 and 2025, respectively, in product revenue from companies in Canada.

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:

(10)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.

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 $938, with the corresponding amount reflected as a settlement expense classified as general and administrative in the unaudited consolidated condensed statements of operations for the three and six months ended June 30, 2026. Of the settlement liability recognized at June 30, 2026, the full amount was classified as short-term and included in the current liabilities section of the unaudited consolidated condensed balance sheet.

The Settlement Agreement provides for an aggregate settlement amount of £700, payable in U.S. dollars using a fixed exchange rate of $1.34 per British pound, resulting in an aggregate U.S. dollar obligation of $938. The first $469 is payable in six monthly installments beginning August 5, 2026 and ending January 4, 2027. The parties also agreed to a six-month exclusivity period during which they will seek to develop a new sun protection factor (“SPF”) product and negotiate a potential commercial agreement for the development and/or supply of the SPF product.

If the parties enter into such a commercial agreement during the exclusivity period, the remaining$469 of the settlement obligation will be applied as credits against purchases under that agreement. If the parties do not enter into a commercial agreement during the exclusivity period, the remaining$469 will be payable in six monthly installments beginning February 3, 2027 and ending July 7, 2027. Because the aggregate settlement obligation is fixed, execution of a new commercial agreement affects only the form in which the final$469 is satisfied rather than the total amount of the obligation.

**(11)Restatement of Previously Issued Consolidated Financial Statements **

Nature of the errors

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. (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, work in process 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, allocate fixed overhead based on normal capacity, 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 were 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.

Restatement conclusion and affected filings

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 concluded that the Company’s previously issued consolidated financial statements as of and for December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, September 30, 2025, December 31, 2025 and March 31, 2026 should no longer be relied upon and should be restated. The Company will reiterate its report of the corrections in a Current Report on Form 8-K filed on August 20, 2026. The Company expects to file amendments to its Annual Reports on Form 10-K which may include the years ended December 31, 2023, 2024 & 2025 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024, June 30, 2024, September 30, 2024, March 31, 2025, June 30, 2025, September 30, 2025 and March 31, 2026 in the coming weeks.

Based on the Company’s preliminary analysis (subject to revision, if determined to be appropriate, in the amendments to the Reports listed in the immediately preceding paragraph), the accompanying unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025 and the related notes have been restated to correct the errors. The balance sheet as of December 31, 2025 also has been restated. The financial statements for the three and six months ended June 30, 2026 were prepared using the corrected inventory-costing methodology and therefore are not themselves restated

The effects of the restatement on the previously issued financial statements presented or otherwise required to be disclosed in this Quarterly Report are set forth below. “As Previously Reported” amounts are derived from the applicable filed financial statements. “Adjustment” amounts reflect the correction of the inventory-costing errors and the related income-tax and per-share effects. Certain amounts may not sum due to rounding.

Effect on the consolidated balance sheet

December 31, 2025

Effect on the consolidated statements of operations

Three months ended June 30, 2025

Six months ended June 30, 2025

Effect on the previously issued first-quarter 2026 financial statements

March 31, 2026 — consolidated balance sheet

Three months ended March 31, 2026 — consolidated statement of operations

Effect on the consolidated statement of cash flows

Six months ended June 30, 2025

Effect on stockholders’ equity

The cumulative pretax inventory overstatement at December 31, 2024 was$4,613. The corresponding opening-equity adjustment must be stated net of the final income-tax effect and must be aligned with the earliest period presented after the complete December 31, 2023 bridge is available.

Related disclosures

The Company has updated Note 7 Inventories, net to present corrected inventory by class. The Company also evaluated the effects of the restatement on its debt arrangements, liquidity disclosures and classification of obligations; see Note 6 for additional information.