Quarterly Report for Quarter Ending June 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

Through our Guardian Laboratories division, we specialize in manufacturing cosmetic, personal care and sexual wellness ingredients and a line of healthcare products including pharmaceuticals and medical lubricants. 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 second quarter of 2026, there was a nominal amount of sales of our sexual wellness products. Although sales of this product line are just beginning to commence, 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 have received approval from two major Pharmacy Benefit Managers ("PBM's") for inclusion on their formularies beginning in 2026. One of these PBM's began including Renacidin on its formulary effective June 1, 2026, and the other on July 1, 2026. 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 to grow the market for Renacidin.

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 six months ended June 30, 2026 and June 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 second quarter of 2026 increased by $270,042 (10%) when compared with the same period in 2025. Net sales for the first half of 2026 increased by $661,137 (12%) as compared with the corresponding period in 2025. The increase in sales for the second quarter of 2026 and the first half 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 our two pharmaceutical products, Renacidin and Clorpactin^® WCS-90, discussion of pharmaceutical sales includes references to both gross sales (before fees, rebates, and allowances) and net sales (after fees, rebates, and allowances).

Gross sales of our pharmaceutical products for the three-month period ended June 30, 2026 increased by $4,904 (less than 1%) compared with the corresponding period in 2025. The increase in gross sales was primarily due to an increase of $22,821 (1%) in gross sales of Renacidin combined with a decrease of $17,917 (11%) in gross sales of the Company's other pharmaceutical product, Clorpactin WCS-90. The decrease in Clorpactin WCS-90 sales was due to the timing of customer orders.

For the six-month period ended June 30, 2026, gross pharmaceutical sales increased by $331,107 (11%) compared with the corresponding period in 2025. This increase was primarily due to an increase in gross sales of Renacidin of $312,752 (10%) combined with an increase in gross sales of Clorpactin WCS-90 of $18,355 (6%).

Net sales of our pharmaceutical products for the three- and six-month periods ended June 30, 2026 saw a similar pattern, with net sales increasing by $16,663 (1%) and $292,173 (11%), respectively.

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 create increased demand for Renacidin in the future.

Typically, any differences 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 combined with changes in pharmaceutical sales allowances related to these products. Typically, these allowances have a direct relationship to the sales of the Company's pharmaceutical products.

Cosmetic and Sexual Wellness ingredients:

(a) Second quarter sales: For the second quarter of 2026, sales of our cosmetic and sexual wellness ingredients increased by $390,150 (44%) when compared with the second quarter of 2025. The increase was due primarily to a net increase of $286,282 (38%) in sales to our largest cosmetic distributor, ASI, when compared with the second quarter of 2025. This increase was primarily due to ASI resuming regular purchases of the Company's products after experiencing an overstock situation in 2025.

Second quarter sales to the Company's four other distributors, as well as two direct customers, increased by a net of $103,868 (77%) compared with the second quarter of 2025. The increase was attributable to sales increases of $122,216 (161%) to the Company's distributors in the U.K. and France and two direct customers. These increases were partially offset by a decrease in sales of $18,348 (31%) to the Company's distributors in Switzerland, Korea and Italy.

(b) Six-month sales: For the first half of 2026 sales of our cosmetic and sexual wellness ingredients increased by $536,417 (34%) when compared with the corresponding period in 2025. This increase was primarily due to a net increase in sales to ASI of $489,381 (40%) when compared with the first half of 2025. The increase in sales during the first half of 2026 was primarily due to same reason discussed above regarding ASI returning to normal ordering patterns after dealing with an overstock situation during 2025.

Six-month sales to the Company's four other distributors, as well as two direct customers, increased by a net of $47,036 (12%), compared with the same period in 2025. Sales to the Company's distributors in the United Kingdom, Korea, France and Switzerland increased by $94,619 (30%), while sales to the Company's distributor in Italy and two direct customers decreased by a combined $47,583 (69%).

Medical lubricants:

For the three-month period ended June 30, 2026, sales of our medical lubricants decreased by $136,771 (28%) compared with the same period in 2025. The decrease in sales for the three-month period was primarily due to a decrease in orders from the Company's largest customer in India. For the six-month period ended June 30, 2026, sales of our medical lubricants decreased by $167,453 (15%) compared with the same period in 2025. The decrease in sales for the six-month period was primarily due to the same reason above, and was related to reduced orders from our largest customer in India.

Cost of Sales

Cost of sales as a percentage of net sales increased slightly to 50% in the second quarter of 2026 from 47% in the second quarter of 2025. For the first six months of 2026, cost of sales as a percentage of sales increased to 50% compared with 46% for the first six months of 2025. The increase in both periods was primarily due to the units sold in 2026 carrying an increased overhead cost resulting from lower unit production levels in 2025. As a result, these units carried a higher overhead cost, and when these units were sold in the current year the cost of sales increased.

Operating Expenses

Operating expenses, consisting of selling and general and administrative expenses, decreased by $26,768 (4%) for the three-months ended June 30, 2026, compared with the same period in 2025. For the six-month period ended June 30, 2026, operating expenses increased by $7,460 (less than 1%), compared with the same period in 2025. The decrease in the three-month period was primarily due to decreases in sales and marketing travel, consulting fees, and the Company's 401K Plan discretionary contribution.

Research and Development Expenses

Research and development expenses increased by $16,527 (15%) for the three-month period ended June 30, 2026, and $17,154 (8%) for the six-month period ended June 30, 2026, compared with the same periods in 2025. The increase in both periods was primarily due to increases in payroll and payroll-related expenses.

Investment Income

Investment income decreased by $128 (less than 1%) and $15,001 (10%), respectively, for the three-and six-month periods of 2026 compared with the same periods in 2025. The decrease was primarily due to decreases in interest rates in 2026 compared to 2025.

Net gain on Marketable Securities

The net gain on marketable securities increased by $23,789 and $29,181, respectively, for the three-and six-month periods ended June 30, 2026, compared to the same periods in 2025. These increases were due to 1) increases in the market value of these securities based on market conditions, and 2) the recognition of a gain on the sale of equity mutual funds in the first quarter of 2026, compared to a loss on those sales in the first quarter of 2025. The Company's management and Board of Directors are continuing to closely monitor our investment portfolio and have made and will continue to make any changes they believe may be necessary or appropriate to minimize the future impact on our financial position that the volatility of the global financial markets may have.

Settlement Income

Included in net income for the three- and six-month periods ended June 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 majority of the product covered by this agreement was received at our facility in March of 2026 and was valued at $303,133. During the second quarter of 2026, the remaining product covered by the agreement was received and was valued at $36,360. 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 half and second quarter of both 2026 and 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 $10,977,452 at June 30, 2026, an increase of $445,376. The current ratio remained the same at 7.3 to 1 at both June 30, 2026 and December 31, 2025. The increase in working capital was primarily due to an increase in cash and cash equivalents.

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 intends to utilize its available cash and assets primarily for its continued organic growth and potential future strategic transactions, as well as to mitigate the potential impact of inflation on the Company's business.

The Company generated cash from operations of $2,124,531 and $625,323 for the first half of 2026 and 2025, respectively. The increase was primarily due to an increase in net income, combined with decreases in inventories and prepaid income taxes.

Net cash provided by investing activities was $165,002 and $ 885,686, respectively, for the first half of 2026 and 2025. The decrease was due to some proceeds from the sale of marketable securities from the first half of 2025 not being reinvested. For the six-month period ended June 30, 2026, these proceeds were primarily reinvested in U.S. Treasury Bills.

Net cash used in financing activities was $1,149,892 and $1,618,183 for the first half of 2026 and 2025, respectively. The decrease in cash used in financing activities was primarily due to the payment of lower dividends in the first half of 2026 compared to the same period in 2025. We declared dividends of $0.25 per share in the first half of 2026, compared to $0.35 per share in the first half of 2025.

The Company expects to continue to use its cash to make dividend payments, purchase marketable securities, and 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 impact 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.