Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

You should read the following discussion and analysis in conjunction with our financial statements and related notes contained elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

EXECUTIVE OVERVIEW

We are a diversified life sciences and personal care ingredients company that develops, manufactures and globally commercializes proprietary pharmaceuticals, medical lubricants, specialty cosmetic ingredients and consumer wellness products. With a long-standing reputation for delivering high-quality specialty products, we are committed to serving diverse markets with innovative solutions.

In January 2026, we entered into a new distribution agreement with Brenntag Specialties, a global market leader in chemicals and ingredients distribution, for the distribution of our new Natrajel^® line of sexual wellness ingredients in the United States, Canada, and Mexico, and the distribution of Lubrajel^® and Natrajel products in France. The new agreement provides an opportunity to grow the French market, which is known for innovation in personal care products.

In the third quarter of 2026, there were modest sales of our sexual wellness products. Although sales of this product line are just beginning, we are optimistic as to the potential this market offers. The sexual wellness segment is expected to grow at a higher compound annual growth rate ("CAGR") than other segments such as skin care, personal care and cosmetics.

With a refined product portfolio and strategic partnerships, we are well-positioned for future growth, leveraging our expertise in specialty ingredients to capitalize on emerging market opportunities.

In 2025, we launched an insurance payer outreach program with the goal of having Renacidin, our most important pharmaceutical product, included on additional drug formularies. As a result of this effort, we received approval from two major Pharmacy Benefit Managers ("PBM's") for inclusion on their formularies. One of these PBM's began including Renacidin on its formulary effective June 1, 2026, and the other on July 1, 2026.

During the third quarter of 2026, we saw a significant increase in gross sales of Renacidin, and believe that that increase was partially attributable to the inclusion of the product on these PBM formularies. While we will continue our insurance payer outreach as we move through 2026, we will also introduce a new outreach program with the focus on increasing awareness among healthcare professionals in order to further grow the market for Renacidin.

MACROECONOMIC AND GEOPOLITICAL CONDITIONS

A substantial portion of our product portfolio is manufactured and distributed domestically within the United States. While our domestic production footprint insulates these sales from direct cross-border import tariffs, our operating margins remain sensitive to fluctuations in global energy markets and petrochemical supply chains. Geopolitical volatility and supply disruptions in major oil- and gas-producing regions, including the Middle East and Eastern Europe, have historically contributed to increased freight surcharges and higher costs for petroleum-derived raw materials and packaging supplies. Significant or prolonged inflation in these input costs, if we are unable to fully pass them along to customers through selling price adjustments, could compress our gross margins and adversely affect our results of operations.

A meaningful portion of our consolidated revenues is generated from international sales to overseas markets, including key distribution channels in Asia. Consequently, our financial condition and international growth prospects are vulnerable to shifts in trade relations, regional economic conditions, and foreign regulatory policies. The changes in U.S. trade policies and retaliatory tariff measures or non-tariff barriers imposed by foreign trade partners, particularly in key Asian markets, could directly increase the landed cost of our products for international customers. Higher effective duty rates may reduce our price competitiveness relative to local suppliers or prompt customers to seek alternative formulations. While we monitor international tariff exemption processes and local import regulations, any escalation in retaliatory tariffs, changes in local duty waivers, or heightened trade restrictions targeting American chemical products could lead to reduced export sales volumes, margin compression, and diminished cash flows from international operations.

CRITICAL ACCOUNTING POLICIES

As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, the discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in conformity with US GAAP. The preparation of those financial statements required us to make estimates and assumptions that affect the carrying value of assets, liabilities, revenues, and expenses reported in those financial statements. Those estimates and assumptions can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. Our most critical accounting policies relate to revenue recognition, concentration of credit risk, investments, inventory, and income taxes. Since December 31, 2025, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

The following discussion and analysis cover material changes in our financial condition since the year ended December 31, 2025, and a comparison of the results of operations for the three and nine months ended September 30, 2026 and September 30, 2025. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2025. All references in this quarterly report to "sales" or "Sales" shall mean Net Sales unless specified otherwise.

In accordance with ASU-2016-13, we recognize an allowance for credit losses for financial assets carried at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset.

RESULTS OF OPERATIONS

Net Sales

Net sales for the third quarter of 2026 increased by $1,230,519 (54%) when compared with the same period in 2025. Net sales for the first nine months of 2026 increased by $1,891,656 (25%) as compared with the corresponding period in 2025. The increase in sales for the third quarter of 2026 and the first nine months of 2026 was attributable to changes in sales of the following product lines:

Pharmaceuticals:

Because there are fees, rebates and allowances associated with sales of the Company's two pharmaceutical products, Renacidin and Clorpactin^® WCS-90, discussion of the Company's pharmaceutical sales includes references to both gross sales (before fees, rebates and allowances) and net sales (after fees, rebates and allowances).

Gross sales of the Company's pharmaceutical products for the three-and nine-month periods ended September 30, 2026 increased by $355,154 (24%) and $686,260 (15%), respectively, compared to the same periods in 2025. The increase for both periods was due to increases in gross sales of both Renacidin and Clorpactin WCS-90. Gross sales of Renacidin increased by $332,768 (26%) for the three-month period and $645,519 (16%) for the nine-month period. Gross sales of Clorpactin WCS-90 increased by $22,386 (13%) for the three-month period and $40,741 (9%) for the nine-month period. The Company believes the increase in sales of Renacidin was partially attributable due to the increased formulary coverage that began in the third quarter of 2026. The increase in sales of Clorpactin WCS-90 was due to normal fluctuations in customer ordering patterns.

With the benefits from our insurance payer outreach program starting to take shape, we are hopeful that the new formulary wins, combined with the focus on increasing awareness of Renacidin among healthcare professionals, will continue to create increased demand for Renacidin.

Net sales of the Company's pharmaceutical products for the three- and nine-month periods ended September 30, 2026, saw a similar pattern, increasing by $353,212 (29%) for the three-month period and increasing by $646,982 (17%) for the nine-month period, with those increases due primarily to the reasons noted above.

The difference between the change in net sales compared with the change in gross sales for these products is due to a combination of the change in gross sales of those products as well as changes in pharmaceutical sales allowances related to the sales of these products. Typically, these allowances are directly related to the sales of these products. For the three- and nine-month periods ended September 30, 2026, sales allowances related to the Company's pharmaceutical products increased by $1,941 (less than 1%) and $39,278 (4%), respectively, which were primarily related to increases in Medicare Part D rebates, VA rebates, and distribution fees.

Cosmetic ingredients:

(a)

Third quarter sales: For the third quarter of 2026, the Company's sales of cosmetic ingredients increased by $752,964 (187%) when compared with the third quarter of 2025. The increase in third quarter sales was due primarily to an increase of $765,482 (275%) in sales of the Company's cosmetic products to ASI. This increase was primarily due to ASI continuing to resume regular purchases of the Company's products after experiencing an overstock situation in 2025.

Third quarter sales in 2026 to the Company's four other distributors, as well as two direct cosmetic ingredient customers, decreased by a net of $12,518 (10%) compared with the third quarter of 2025. This sales decrease was primarily due to decreases in sales to our distributors in France and the United Kingdom.

(b)

Nine-month sales: For the first nine months of 2026, the Company's sales of cosmetic ingredients increased by $1,289,533 (65%) when compared with the same period in 2025. This increase was due primarily to an increase of $1,254,863 (84%) in sales to ASI, which was due to the same reason discussed above.

Cosmetic ingredient sales for the first nine months of the year to the Company's four other cosmetic distributors, as well as to two direct cosmetic customers, increased by a net of $34,670 (7%) compared with the same period in 2025. This sales increase was primarily due to the increased orders from our new distributor in Korea.

Medical lubricants:

Sales of the Company's medical lubricants increased by $124,343 (20%) for the three-month period ended September 30, 2026, compared with the same period in 2025, while sales for the nine-month period decreased by $44,859 (3%), compared with the same period in 2025. The increase in medical lubricant sales for the three-month period was due to an increase in orders from one of our larger customers in India. The decrease for the nine-month period was due to normal fluctuations in customer ordering patterns.

Cost of Sales

Cost of sales as a percentage of sales decreased to 46% in the third quarter of 2026, down from 58% in the third quarter of 2025. For the first nine months of 2026, cost of sales as a percentage of sales decreased to 49%, down from 50% in 2025. The decrease for the three-month period was the result of recognizing the benefit of lower per unit overhead costs on units sold in the third quarter of 2026 due to increased production.

Operating Expenses

Operating expenses, consisting of selling and general and administrative expenses, increased by $23,646 (4%) for the third quarter of 2026 compared with the equivalent period in 2025 and increased by $31,106 (2%) for the first nine months of 2026, compared with the equivalent period in 2025. The increase in operating expenses for both periods was due primarily to increases in sales and marketing expenses and payroll and payroll-related expenses.

Research and Development Expenses

Research and development expenses increased by $4,730 (4%) for the third quarter of 2026 and increased by $21,884 (6%) for the first nine months of 2026 compared with the same periods in 2025. The increases for both periods were primarily due to an increase in payroll and payroll-related expenses.

Investment Income

Investment income decreased by $2,609 (3%) and $17,610 (8%) for the three- and nine-month periods, respectively, ending September 30, 2026, compared with the equivalent periods in 2025. The decrease in both periods was primarily due to a decrease in interest income from investments in U. S. Treasury Bills due to lower interest rates in the first nine months of 2026 compared to the same period 2025.

Net (Loss) Gain on Marketable Securities

The net change in the value of marketable securities decreased from a gain of $36,238 for the third quarter ending September 30, 2025 to a loss of $7,916 for the third quarter ending September 30, 2026. For the nine-month period ended September 30, 2026, the net gain decreased from $73,164 to $58,191. These decreased gains were due to normal market fluctuations. The Company's management and Board of Directors continue to closely monitor the Company's investment portfolio and have made, and will continue to make, any changes they believe may be necessary or appropriate to minimize the future impact of global market volatility on the Company's financial position.

Settlement Income

Included in net income for the nine-month period ended September 30, 2026, is a monetary settlement paid to us by the contract manufacturer ("CM") of our pharmaceutical product Renacidin. The settlement relates to the unexpected shutdown of the CM's facility during the latter part of 2023 and in the beginning of 2024. During this time, we were unable to fill complete orders of Renacidin. On October 27, 2023, we notified the CM of our intention to file a claim for damages in connection with the CM's breach of our supply contract with the CM, and we requested compensation for the loss of sales during the shutdown period. The settlement, which was agreed upon by both parties, called for the CM to supply us with a specified volume of product at no cost. The product covered by this agreement was received at our facility in the first and second quarters of 2026 and was valued at $339,493. As of the date of this report, the CM has fulfilled their full obligation under the agreement, and there are no additional monies owed to the Company.

Provision for Income Taxes

The Company's effective income tax rate was 21% for the first nine-months of 2026 and 20% for the same period in 2025. The Company's tax rate is expected to remain at 21% for the current fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

Working capital increased from $10,532,076 at December 31, 2025 to $10,645,764 at September 30, 2026, an increase of $113,688. The current ratio decreased from 7.3 to 1 at December 31, 2025 to 6.5 to 1 at September 30, 2026. The increase in working capital was primarily due to an increase in accounts receivable. The decrease in the current ratio was primarily due to increases in accrued expenses and deferred revenue.

The Company believes that its working capital is, and will continue to be, sufficient to support its operating requirements for at least the next twelve months.

The Company generated cash from operations of $2,678,894 and $1,636,324 for the nine months ended September 30, 2026 and September 30, 2025, respectively. The increase in cash from operations was primarily due to an increase in net income.

Cash provided by investing activities was $7,625 and $115,577 for the nine-month period ended September 30, 2026 and September 30, 2025, respectively. The decrease was due to some proceeds from the sale of marketable securities during the first nine months of 2025 not being reinvested. For the nine-month period ended September 30, 2026, a majority of these proceeds were reinvested in U.S. Treasury Bills.

Cash used in financing activities was $2,529,813 and $2,766,720 for the nine-month period ended September 30, 2026 and September 30, 2025, respectively. The decrease was due to the payment of lower dividends in the first nine months of 2026 compared to the same period in 2025. We declared dividends of $0.55 per share for the nine-month period ended September 30, 2026, compared to $0.60 per share for the same period in 2025.

The Company expects to continue to use its cash to make dividend payments, to purchase marketable securities, and to take advantage of growth opportunities that are in the best interest of the Company and its shareholders.

OFF BALANCE-SHEET ARRANGEMENTS

The Company has no off balance-sheet transactions that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The information to be reported under this item is not required of smaller reporting companies.