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Note 8 - Revenue Recognition
 6 Months Ended
Jun. 30, 2025
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

8.

Revenue Recognition

 

The Company records revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.” Under this guidance, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services. Our principal source of revenue is product sales.

 

Our sales, as reported, are subject to a variety of deductions, some of which are estimated. These deductions are recorded in the same period in which the revenue is recognized. Such deductions, primarily related to the sale of our pharmaceutical products, include chargebacks from the United States Department of Veterans Affairs (“VA”), rebates in connection with our current participation in Medicare programs, distribution fees, discounts, and outdated product returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on sales for a reporting period.

 

 

During 2025 and 2024, we participated in various government drug rebate programs related to the sale of Renacidin, our most important pharmaceutical product. These programs include the Veterans Affairs Federal Supply Schedule (“FSS”), and the Medicare Part D Coverage Gap Discount Program (“CGDP”). These programs require us to sell our products at a discounted price, typically in the form of a rebate. Our sales, as reported, are net of these rebates, some of which are estimated and are recorded in the same period that the revenue is recognized.

 

On January 1, 2025, the Centers for Medicare & Medicaid Services (“CMS”) implemented a new Medicare Part D Manufacturer Discount Program (“Discount Program”), which replaced the prior CGDP. The new Discount Program eliminates the coverage gap benefit phase, introduces pharmaceutical manufacturer discounts in the initial and catastrophic coverage phases, and lowers the cap on enrollee out-of-pocket costs. Under the new Discount Program, additional rebates are expected to be owed by pharmaceutical manufacturers due to the restructuring of the benefit periods and removal of the cap that was in place that limited the drug manufacturer’s liability. The overall financial impact of this new program will vary depending on the products being reimbursed but it is expected to increase Medicare Part D rebates for drug manufacturers.

 

On January 31, 2024, we were notified by CMS that we qualified as a “specified small manufacturer” and would be entitled to a multi-year phase-in period during which we would pay a lower percentage discount on drugs dispensed to beneficiaries. Based on our “specified small manufacturer” designation, it appears, based on our current level of sales through the Medicare Part D Program, we would have reduced rebate liabilities in years 2025 and 2026, with rebates gradually increasing each year thereafter, until they reach their full phase-in by 2031. By the end of the phase in period in 2031, these rebate liabilities are expected to significantly exceed the liabilities we have recorded under the CGDP in previous years.

 

As long as a valid purchase order has been received and future collection of the sale amount is reasonably assured, we recognize revenue from sales of our products when those products are shipped, which is when our performance obligation is satisfied. Our cosmetic products are shipped EXW from our facility in Hauppauge, NY, and the risk of loss and responsibility for the shipment passes to the customer upon shipment. Sales of our medical lubricant products are deemed final upon shipment, and we have no obligation to repurchase or allow the return of these goods unless they are defective. Sales of our pharmaceutical products are final upon shipment unless (a) they are found to be defective; (b) the product is damaged in shipping; (c) the product is too close to its expiration date for the customer to sell; or (d) the product is expired but is not more than one year after its expiration date. These return policies are in conformance with standard pharmaceutical industry practice. We estimate an allowance for outdated material returns based on previous years’ historical returns of our pharmaceutical products.

 

The Company does not make sales on consignment, and the collection of the proceeds of the sale of any of our products is not contingent upon the customer being able to sell the goods to a third party.

 

Any allowances for returns are taken as a reduction of sales within the same period the revenue is recognized. Such allowances are determined based on historical experience under ASC Topic 606. We have not experienced significant fluctuations between estimated allowances and actual activity.

 

At June 30, 2025, the Company recorded advance payments from customers of $128,632, which are included in deferred revenue on the balance sheet. The related performance obligations associated with these payments were satisfied in the third quarter of 2025. There were no such advance payments at December 31, 2024.

 

The Company has distribution fee contracts with certain distributors of its pharmaceutical products that entitle them to distribution and service-related fees. The Company records distribution fees and estimates of distribution fees as offsets to revenue.

 

 

Disaggregated sales by product class are as follows:

 

   

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    2025     2024     2025     2024  

Cosmetic ingredients

   $ 896,549     $ 1,419,374     $ 1,595,546     $ 3,295,856  

Pharmaceuticals

     1,451,679       1,413,664       2,620,137       2,363,987  

Medical lubricants

     489,997       557,167       1,103,669       985,306  

Total Net Sales

   $ 2,838,225     $ 3,390,205     $ 5,319,352     $ 6,645,149  

 

The Company’s cosmetic ingredients are marketed worldwide by five distributors, of which U.S.-based Ashland Specialty Ingredients (“ASI”) purchases the largest volume. For both three-month periods ended June 30, 2025 and 2024, approximately 17% of the Company’s total sales were to customers located outside of the United States. For the six months ended June 30, 2025, approximately 23% of the Company’s total sales were to customers located outside of the United States, compared with approximately 15% for the six months ended June 30, 2024.

 

Disaggregated sales by geographic region are as follows:

 

   

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United States*

   $ 2,346,526     $ 2,808,237     $ 4,103,793     $ 5,627,173  

Other countries

     491,699       581,968       1,215,559       1,017,976  

Total Sales

   $ 2,838,225     $ 3,390,205     $ 5,319,352     $ 6,645,149  

 

* Since all purchases by ASI are shipped to ASI’s warehouses in the U.S., all sales to ASI are reported as U.S. sales for financial reporting purposes, even though a significant quantity of those purchases will be shipped by ASI to foreign customers. ASI has reported to the Company that approximately 80% of its sales of the Company’s products in the second quarter of 2025 were to foreign customers, with China representing approximately 42%. For the same time period in 2024, approximately 85% of ASI’s sales of the Company’s products were to foreign customers, with China representing approximately 56%.

 

For the six months ended June 30, 2025 approximately 75% of ASI’s sales of the Company’s products were to customers in other countries, with China accounting for approximately 40% of ASI’s sales of the Company’s products, as compared with approximately 84% of ASI’s sales going to customers in other countries for the six months ended June 30, 2024, with China accounting for approximately 50% of ASI’s sales of the Company’s products during that period.