5.	Revenue Recognition

Effective

January 1, 2018,

the Company adopted ASC Topic

606

“Revenue from Contracts with Customers” using the modified retrospective method. Under the new 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 net of a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration includes chargebacks from the United States Department of Veterans Affairs (‘VA”), rebates in connection with Medicare and Medicaid programs, distribution fees, and sales 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.

The Company recognizes revenue from sales of its personal care, medical, and industrial products when those products are shipped, as long as a valid purchase order has been received and future collection of the sale amount is reasonably assured. These products are shipped “Ex-Works” from the Company’s facility in Hauppauge, NY, and it is at this time that risk of loss and responsibility for the shipment passes to the customer. Sales of these products are deemed final, and there is

obligation on the part of the Company to repurchase or allow the return of these goods unless they are defective.

The Company’s pharmaceutical products are shipped via common carrier upon receipt of a valid purchase order, with, in most cases, the Company paying the shipping costs. Sales of pharmaceutical products are final and revenue is recognized at the time of shipment. Pharmaceutical products are returnable only at the discretion of the Company unless (a) they are found to be defective; (b) the product is damaged in shipping; or (c) the product is outdated (but

not

more than

one

year after their expiration date, which is a return policy which conforms to standard pharmaceutical industry practice). The Company estimates an allowance for outdated material returns based on prior year historical returns of their pharmaceutical products.

The Company does

not

make sales on consignment, and the collection of the proceeds of the sale of any of the Company’s 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. The Company has

not

experienced significant fluctuations between estimated allowances and actual activity.

The timing between recognition of revenue for product sales and the receipt of payment is

not

significant. The Company’s standard credit terms, which vary depending on the customer, range between

and

days. The Company uses its judgment on a case-by-case basis to determine its ability to collect outstanding receivables, and provides allowances for any receivables for which collection has become doubtful. As of

June 30, 2019

and

December 31, 2018,

the allowance for doubtful accounts receivable amounted to

$16,895

Prompt-pay discounts are offered to some customers; however, due the uncertainty of the customers actually taking the discounts, the discounts are recorded when they are taken.

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

Disaggregated sales by product class is as follows:

	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Personal Care	$	1,435,951	$	2,326,733	$	3,087,673	$	4,449,845
Pharmaceutical		994,731		891,064		1,882,333		1,635,873
Medical		807,694		624,732		1,418,201		1,163,829
Industrial and other		41,023		43,358		71,509		72,604
Total Sales	$	3,279,399	$	3,885,887	$	6,459,716	$	7,322,151

Disaggregated sales by geographic region is as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2019		2018		2019		2018
United States *	$	2,590,643	$	3,219,414	$	5,149,548	$	6,046,913
Other countries		688,756		666,473		1,310,168		1,275,238
Total Sales	$	3,279,399	$	3,885,887	$	6,459,716	$	7,322,151

U.S.-based Ashland Specialty Ingredients (“ASI”) is the largest of

six

marketing partners the Company uses to market and distribute some of its products. Although a significant percentage of ASI’s purchases from the Company are sold to foreign customers, all sales to ASI are considered U.S. sales for financial reporting purposes, since all shipments to ASI are shipped to ASI’s warehouses in the U.S. A significant percentage of the products are subsequently shipped by ASI to foreign customers. Based on sales information provided to the Company by ASI, in the

second

quarter of

2019

approximately

70%

of ASI’s sales of the Company’s products were to foreign customers, with China representing

54%

of ASI’s total sales of the Company’s products. By comparison, in the

second

quarter of

2018

approximately

77%

of ASI’s sales of the Company’s products were to foreign customers, with China representing

62%

of ASI’s total sales of the Company’s products. For the

first

six

months of

2019,

approximately

75%

of ASI’s sales of the Company’s products were to foreign customers, with China representing

52%

of ASI’s total sales of the Company’s products. By comparison, in the

first

six

months of

2018

approximately

73%

of ASI’s sales of the Company’s products were to foreign customers, with China representing

54%

of ASI’s total sales of the Company’s products.

For the

three

months ended

June 30, 2019

and

June 30, 2018,

approximately

21%

and

17%,

respectively, of the Company’s sales were to (a) its

five

foreign-based marketing partners, which marketed and distributed the Company’s personal care products to customers outside the U.S, and (b) a few foreign customers for the Company’s medical products. For the

six

-month periods ended

June 30, 2019

and

June 30, 2018

those foreign sales were

20%

and

17%,

respectively.