Note 4 - Impact of Global Supply Chain Instability, Inflation and Tariffs

6 Months Ended

Jun. 30, 2025

Notes to Financial Statements

Impact of Coronavirus (COVID-19) [Text Block]

4. Impact of Global Supply Chain Instability, Inflation and Tariffs

The Company is actively monitoring trade policy and tariff announcements including executive orders issued by the executive branch of the United States (“U.S.”) federal government regarding tariffs on imports from various countries, with a focus on China, as those tariffs have the greatest potential to significantly impact our business. In addition, we are monitoring the potential impact of actions taken by these countries in response to the announced tariffs. On July 31, 2025, an executive order was signed imposing additional tariffs on a wide range of trading partners. While recent reports indicate that these tariffs are set to take effect on August 7, 2025 with the exception of Canada which will take place on August 1, 2025, some countries still have additional time to reach an agreement before their extension expires. It is unclear at this time if retaliatory tariffs will be imposed and what impact they will have on our business. We will continue to monitor the situation closely.

A significant amount of our cosmetic ingredient and medical lubricant sales are reliant on shipments to China. If significant tariffs or other restrictions are placed on Chinese imports, or any countermeasures are taken by China, our business, financial condition or results of operations could be materially and adversely affected. Such tariffs may make our products less cost competitive and reduce gross margins, especially in China, where we face significant competition from Asian companies that manufacture and sell products that are competitive with our products. Furthermore, we may not be able to increase our prices for our products enough to offset these tariffs, and if we raise prices in response to these tariffs, demand for our products in certain regions may be reduced. The impact of the softened demand in China due to these tariffs was reflected in the sales of our cosmetic products during the first half of 2025.

Many of our products are used in the formulation of finished products that are manufactured in China and then imported back into the U.S. for sale. There is the possibility that the tariffs levied on these finished products could result in an increase in their price, which could potentially impact demand for these products in the U.S. There is also a possibility that customers will consider moving their manufacturing from China as a strategic decision to limit the impact from tariffs. We have strong global relationships with our distributors and will continue to work together to understand how tariffs are impacting their business and the business of our joint customers.

We source products through numerous suppliers, many of whom have established long-term relationships with us. While we obtain most of our raw materials and lab supplies from domestic sources, we have three suppliers that obtain their raw materials from China. These materials are not purchased by us in large quantities, and we have adequate stock on hand to cover the next six months. In addition, we have one direct raw material supplier in China; however, we do not purchase large quantities of raw materials from this supplier, and the effect of this tariff would not materially impact the pricing of our products.

At this time, the overall impact on our business related to these or any other tariffs that may be imposed, remains uncertain and depends on multiple factors, including the duration and expansion of current tariffs, future changes to tariff rates, scope or enforcement, retaliatory measures by impacted trade partners, inflationary effects, and the effectiveness of our responses in managing these challenges.