EXCELLENCE THROUGH INNOVATION®
Cosmetic Ingredients | Medical Lubricants | Pharmaceutical Products
26 United-Guardian, Inc. Annual Report 2022
Annual Report 2022
BEATRIZ BLANCO
President & Chief Executive Officer
PETER A. HILTUNEN
Senior Vice President
Production and Procurement
ANDREA YOUNG
Chief Financial Officer & Controller
Treasurer
Secretary
DONNA VIGILANTE
Vice President
R&D
OFFICERS AND DIRECTORS
KEN GLOBUS
Chairman of the Board of Directors
ARTHUR M. DRESNER
Director; Counsel to the law firm of
Duane Morris LLP
New York, NY
LAWRENCE F. MAIETTA
Director; Partner in the accounting firm of
PKF O’Connor Davies, LLP
New York, NY
ANDREW A. BOCCONE
Director; Independent Business Consultant,
Former President of Kline & Company, Inc.
(business consulting firm), Little Falls, NJ
S. ARI PAPOULIAS
Director; Principal of ChemRise LLC
(a business advisory firm providing advice to
companies in the chemicals industry), Tarrytown, NY
CORPORATE PROFILE
United-Guardian, Inc. is a publicly-traded (NASDAQ:UG), fully integrated research, development, manufacturing, and marketing
company that has been supplying unique and innovative products to the personal care, health care, pharmaceutical, and industrial
sectors since 1942. The company’s products are developed and manufactured by the company’s Guardian Laboratories Division
at its 50,000 square foot facility in Hauppauge, New York. The cosmetic ingredients are marketed through a worldwide network
of distributors and are used by many of the major multinational cosmetic companies. The pharmaceutical products are sold
primarily to full-line drug wholesalers, which distribute them to pharmacies, hospitals, physicians, long-term care facilities, and
other health care providers. The health care products are primarily medical lubricants marketed directly to manufacturers of
medical devices and other medical products, which incorporate them into their finished products and distribute them to hospitals,
pharmacies, and other health care facilities. The specialty industrial products are sold directly to manufacturers of industrial
products. The LUBRAJEL® line of hydrogels is the company’s most important product line and are used in both personal care and
medical products. Innovation is a central theme of United-Guardian’s strategy. The focus, at this time, is to continue expanding
the pipeline of classic and naturally derived hydrogel products to address unmet market and customer needs. Over the years,
the company has been issued over 32 patents. The company currently relies primarily on proprietary manufacturing methods
and product formulations, which are protected as trade secrets, rather than patent protection. United-Guardian has received ISO
9001:2015 registration from DQS Inc., indicating that the company’s documented procedures and overall operations have attained
the very high level of quality needed for this global certification level.
Cosmetic Ingredients | Medical Lubricants | Pharmaceutical Products
Annual Report 2022
LETTER TO STOCKHOLDERS
Dear Stockholder,
After my first five months as President and CEO of United-Guardian, I would like to take a
moment to reflect on the worldwide events that shaped 2022 and the actions we have taken to
position United-Guardian for growth in 2023 and beyond.
Early in my career, I worked for International Specialty Products (ISP), now Ashland, United-
Guardian’s main distributor for its cosmetic ingredient line of products. At ISP, I launched and
marketed some of the first products that United-Guardian offered to the global personal care market,
and now I have the privilege of leading United-Guardian.
2022 was a difficult year for the global economy in general, and consequently for United-
Guardian. Global economic activity experienced a sharper-than-expected slowdown, accompanied
by the highest rate of inflation in several decades. The tightening financial conditions, the
Russian invasion of Ukraine, and the lingering COVID-19 pandemic all negatively impacted the global
economic growth.
United-Guardian’s income for FY 2022 was down by 45% compared to FY 2021. Net sales for
the year decreased by 9% from $13,929,629 in 2021 to $12,698,503 in 2022, generating net income
of $2,569,512 ($0.56 per share) in 2022 compared to $4,658,542 ($1.01 per share) in 2021. The
decrease in United-Guardian’s net income in 2022 compared to 2021 was primarily the result of a
decrease in revenue from sales of our cosmetic ingredients business combined with a decline in the
value of our marketable securities portfolio. The principal factors that negatively impacted sales of
our cosmetic ingredients were: 1) overstocking by certain contract manufacturers in 2021 to avoid
potential supply chain issues in 2022, and 2) lower demand in Asia, especially in China, due to China’s
zero-COVID policy that was in place for much of 2022. Our pharmaceutical and medical lubricants
businesses remained strong in 2022.
Despite dealing with the economic disruption during 2022, United-Guardian paid dividends of
$0.37 per share in June 2022, and dividends of $0.31 per share in December 2022. This is the 28th
consecutive year that United-Guardian has paid dividends.
I have worked in the personal care industry for more than 20 years. I strongly believe that our
classic and naturally derived hydrogel technologies offer unique benefits to this market and that
our cosmetic ingredients business will rebound as we implement our strategy. The Lubrajel Natural
line of hydrogels addresses increasing consumer demand for plant-derived ingredients and materials
that ‘’leave no trace” in the environment at the end of their product life.
We have well-established personal care and medical lubricants businesses, and we intend to
capitalize on the existing product portfolios and build additional capabilities to strengthen these
businesses. Innovation is a central theme of our strategy to secure long-term growth, so we will
continue expanding our pipeline of classic and naturally derived hydrogel products to address unmet
United-Guardian, Inc. Annual Report 2022 1
market and customer needs. Technical collaboration with our distributors and customers is essential.
We also plan to establish strategic collaborations with other ingredient suppliers to develop new
value-added technologies.
Our hydrogels offer unique benefits such as premium lubrication, sensory enhancement, and
moisturization. These product benefits are desirable in different markets. We are very excited to
announce that in the second quarter of 2023, we will be launching Natrajel™ hydrogels, a line of
products for the sexual wellness market. This market is experiencing rapid growth and we want
to “ride the wave”. Natrajel™ hydrogels include classic and naturally derived products. The naturally
derived products are made with natural and sustainable raw materials using clean and efficient
manufacturing processes.
We are also implementing growth initiatives in our pharmaceutical business. For our primary
pharmaceutical product, Renacidin, we are exploring the possibility of growing by geographic
expansion. For our other pharmaceutical product, Clorpactin WCS-90, we are continuing to work with
Sign Fracture, an outstanding non-profit organization that gives the injured poor access to fracture
surgery by donating orthopedic education and implant systems to surgeons in developing countries.
After a difficult fourth quarter of 2022, and in spite of the continued challenges facing the world
in the first quarter of 2023, we expect to increase sales in fiscal year 2023 with our new growth
initiatives in place. We will continue a path of change, making choices that are sustainable, innovative
and deliver business growth.
Thank you all for your trust in United-Guardian and in me. We look forward to another profitable
year in 2023.
Sincerely,
Beatriz Blanco
President and CEO
2 United-Guardian, Inc. Annual Report 2022
STATEMENTS OF INCOME
Net sales
Costs and expenses:
Cost of sales
Operating expenses
Research and development
Total costs and expenses
Income from operations
Other (loss) income:
Investment income
Net loss on marketable securities
Total other (loss) income
Years ended December 31,
2022
2021
$ 12,698,503
$ 13,929,629
5,996,376
2,174,127
490,770
8,661,273
4,037,230
5,747,931
2,035,970
478,642
8,262,543
5,667,086
236,695
(1,046,245)
(809,550)
233,857
(23,018)
210,839
Income before provision for income taxes
3,227,680
5,877,925
Provision for income taxes
Net income
658,168
$ 2,569,512
1,219,383
$ 4,658,542
Earnings per common share (basic and diluted)
$
0.56
$
1.01
Weighted average shares (basic and diluted)
4,594,319
4,594,319
See Notes to Financial Statements
United-Guardian, Inc. Annual Report 2022 3
BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowance for doubtful
accounts of $20,063 in 2022 and $20,252 in 2021
Inventories (net)
Prepaid expenses and other current assets
Prepaid income taxes
December 31,
2022
2021
$
830,452
5,653,516
$
531,213
7,635,463
1,427,576
1,672,012
201,846
185,228
1,813,346
1,410,789
192,579
—
Total current assets
9,970,630
11,583,390
Deferred income taxes, net
110,544
—
Property, plant, and equipment:
Land
Factory equipment and fixtures
Building and improvements
Total property, plant and equipment
Less accumulated depreciation
Total property, plant, and equipment, net
69,000
4,585,055
2,895,742
7,549,797
6,990,636
559,161
69,000
4,605,742
2,853,718
7,528,460
6,869,598
658,862
TOTAL ASSETS
$ 10,640,335
$ 12,242,252
See Notes to Financial Statements
4 United-Guardian, Inc. Annual Report 2022
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Income taxes payable
Dividends payable
Total current liabilities
December 31,
2022
2021
30,415
$
1,322,056
—
—
21,220
1,373,691
410,894
$
1,627,390
190,164
88,738
20,575
2,337,761
Deferred income taxes (net)
—
83,222
Commitments and contingencies
Stockholders’ equity:
Common stock, $.10 par value; 10,000,000 shares
authorized; 4,594,319 shares issued and outstanding at
December 31, 2022 and 2021, respectively
459,432
459,432
Retained earnings
Total stockholders’ equity
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
See Notes to Financial Statements
8,807,212
9,266,644
9,361,837
9,821,269
$ 10,640,335
$ 12,242,252
United-Guardian, Inc. Annual Report 2022 5
STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2022 and 2021
Common stock
Shares
Amount
Retained
earnings
Total
Balance, January 1, 2021
4,594,319
$459,432 $ 9,894,875
$ 10,354,307
Net income
—
—
4,658,542
4,658,542
Dividends declared, not paid
($1.13 per share)
Dividends declared and paid
($1.13 per share)
—
—
(1,547)
(1,547)
—
—
(5,190,033)
(5,190,033)
Balance, December 31, 2021
4,594,319
$459,432
$ 9,361,837
$ 9,821,269
Net income
—
—
2,569,512
2,569,512
Dividends declared, not paid
($0.68 per share)
Dividends declared and paid
($0.68 per share)
—
—
(645)
(645)
—
—
(3,123,492)
(3,123,492)
Balance, December 31, 2022
4,594,319
$459,432 $ 8,807,212
$ 9,266,644
See Notes to Financial Statements
6 United-Guardian, Inc. Annual Report 2022
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Loss (gain) on sale of asset
Net loss on marketable securities
Allowance for doubtful accounts
Reserve for inventory obsolescence
Deferred income taxes
Decrease (increase) in operating assets:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Prepaid income taxes
(Decrease) increase in operating liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Income taxes payable
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of property, plant and equipment
Proceeds from sale of asset
Purchases of marketable securities
Proceeds from sales of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information
Years ended December 31,
2022
2021
$ 2,569,512
$ 4,658,542
135,396
2,445
1,046,245
(189)
29,000
(193,766)
385,959
(290,223)
(9,267)
(185,228)
(380,479)
(305,334)
(190,164)
(88,738)
2,525,169
(75,179)
37,039
(1,931,969)
2,867,671
897,562
145,977
(14,799)
23,018
6,235
—
(68,462)
(431,883)
4,984
(31,371)
99,107
379,094
263,933
190,164
88,738
5,313,277
(116,375)
—
(4,219,760)
4,152,660
(183,475)
(3,123,492)
(3,123,492)
(5,190,033)
(5,190,033)
299,239
531,213
$ 830,452
(60,231)
591,444
531,213
$
Taxes paid
$ 1,125,000
$ 1,100,000
Supplemental disclosure of non-cash items:
Dividends payable
Trade-in received from sale of asset
See Notes to Financial Statements
$
$
645
—
$
1,547
$ 29,000
United-Guardian, Inc. Annual Report 2022 7
NOTES TO FINANCIAL STATEMENTS
NOTE A
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company’s gross profit margins in 2022 and may
continue to have an impact on gross profit margins
in upcoming quarters. In response to the rising raw
material prices the Company has instituted price
increases on many of its products, which will help to
reduce the impact on the Company’s gross margins in
the future.
As a result of the lingering effects of the
coronavirus pandemic as described above, combined
with global supply chain instability, there continues to
be uncertainty in regard to its future potential impact
on the Company’s operations or financial results. The
Company believes that it is still unable to provide an
accurate estimate or projection as to what the future
impact of the pandemic will be on its future operations
or financial results.
While it is unknown whether inflation will continue
to increase or will begin to decrease during 2023,
continued inflation is likely to result in further increases
in raw material costs, shipping costs, and internal labor
costs, which could impact the Company’s results of
operations.
Use of Estimates
In preparing financial statements in conformity
with a Generally Accepted Accounting Principles in the
United States of America (“US GAAP”), management
is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenue and
expenses during the reporting period. Actual results
could differ from those estimates. Such estimated
items include the allowance for bad debts, reserve
for inventory obsolescence, accrued distribution fees,
outdated material returns, possible impairment of
marketable securities and the allocation of overhead.
Nature of Business
United-Guardian, Inc. (the “Company”) is a
Delaware corporation that, through its Guardian
Laboratories division, manufactures and markets
cosmetic ingredients, pharmaceuticals, medical
lubricants, and specialty industrial products. It also
conducts research and product development, primarily
related to the development of new and unique
cosmetic ingredients. The Company’s research and
development department also modifies, refines, and
expands the uses for existing products, with the goal
of further developing the market for the Company’s
products. Two major product lines, Lubrajel® and
Renacidin® Irrigation Solution (“Renacidin”) together
accounted for approximately 92% and 93% of the
Company’s sales for the years ended December 31,
2022 and December 31, 2021, respectively. Lubrajel
accounted for approximately 59% and 64% of the
Company’s sales for the years ended December 31,
2022 and December 31, 2021, respectively, and
Renacidin accounted for approximately 33% and 29% of
the Company’s sales for the years ended December 31,
2022 and December 31, 2021, respectively.
Impact of the Coronavirus Pandemic, Global Supply
Chain Instability and Inflation
While the coronavirus pandemic continues to
impact certain areas of the Company’s operations,
the current impact on the Company’s financial
performance is coming primarily from 1) higher raw
material costs and increased shipping costs, which
had an impact on the Company’s gross profit margins
during 2022 and 2) a decrease in cosmetic ingredient
sales in China due to China’s zero-COVID mandate that
was in effect for a substantial part of 2022.
The pandemic did not affect the Company’s
ability to obtain raw materials but due to supply chain
instability, the Company experienced longer lead times
and higher prices for many of its raw materials. The
increased raw material prices had an impact on the
8 United-Guardian, Inc. Annual Report 2022
Accounts Receivable and Reserves
The carrying amount of accounts receivable is
reduced by a valuation allowance that reflects the
Company’s best estimate of the amounts that will
not be collected. The reserve for accounts receivable
comprises the allowance for doubtful accounts. In
addition to reviewing delinquent accounts receivable,
the Company considers many factors in estimating
this reserve, including historical data, experience,
customer types and credit worthiness, and economic
trends. At December 31, 2022 and 2021, the allowance
for doubtful accounts receivable amounted to $20,063
and $20,252, respectively. From time to time, the
Company adjusts its assumptions for anticipated
changes in any of these or other factors expected
to affect collectability.
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. The Company’s principal source of revenue is
product sales.
The Company’s 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 the Company’s
pharmaceutical products, include chargebacks from
the United States Department of Veterans Affairs
(“VA”), rebates in connection with the Company’s
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 2022 and 2021, the Company participated
in various government drug rebate programs
related to the sale of Renacidin®, its 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 the Company to sell
its product at a discounted price. The Company’s 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.
As long as a valid purchase order has been
received and future collection of the sale amount
is reasonably assured, the Company recognizes
revenue from sales of its products when those
products are shipped, which is when the Company’s
performance obligation is satisfied. The Company’s
cosmetic products are shipped “Ex-Works” from the
Company’s facility in Hauppauge, NY, and the risk of
loss and responsibility for the shipment passes to the
customer upon shipment. Sales of the Company’s
non-pharmaceutical medical products are deemed
final upon shipment, and there is no obligation on the
part of the Company to repurchase or allow the return
of these goods unless they are defective. Sales of the
Company’s pharmaceutical products are final upon
shipment unless (a) they are found to be defective; (b)
the product is damaged in shipping; (c) the product
cannot be sold because it is too close to its expiration
date; or (d) the product has expired (but it is not more
than one year after the expiration date). This return
policy conforms to standard pharmaceutical industry
practice. The Company estimates an allowance for
outdated material returns based on previous years’
historical returns of its 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 under ASC Topic 606-10-32-8.
At December 31, 2022 and 2021, the Company had an
allowance of $369,154 and $313,904, respectively, for
possible outdated material returns, which is included in
accrued expenses.
United-Guardian, Inc. Annual Report 2022 9
The timing between recognition of revenue for
Disaggregated sales by geographic region are as
product sales and the receipt of payment is not
significant. The Company’s standard credit terms,
which vary depending on the customer, range between
30 and 60 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. Prompt-pay discounts are offered to some
customers; however, due to the uncertainty of the
customers taking the discounts, the discounts are
recorded when they are taken.
At December 31, 2021, the Company recorded an
advance payment from one of its customers in the
amount of $190,164, which was recorded as deferred
revenue on the balance sheet. The related performance
obligation associated with this payment was satisfied
in the first quarter of 2022. No such advanced payment
exists at December 31, 2022.
The Company has distribution agreements with
certain distributors of its pharmaceutical products that
entitles those distributors to distribution and services-
related fees. The Company records distribution fees, and
estimates of distribution fees, as offsets to revenue.
Disaggregated net sales by product class are as
follows:
2022
Years ended December 31,
2021
$ 5,167,909 $ 6,872,714
4,735,324
4,943,605
2,171,204
2,470,163
150,387
116,826
$ 12,698,503 $13,929,629
Cosmetic ingredients
Pharmaceuticals
Medical lubricants
Industrial and other
Total Net Sales
The Company’s cosmetic ingredients are currently
marketed worldwide by five distributors, of which the
United States (“U.S.”)-based ASI purchases the largest
volume. For the years ended December 31, 2022 and
2021, approximately 25% and 20%, respectively, of
the Company’s sales were to (a) its foreign-based
distributors (which does not include ASI), which
marketed and distributed the Company’s cosmetic
ingredients to customers outside the U.S., and
(b) a few foreign customers for the Company’s medical
lubricants sold directly by the Company.
10 United-Guardian, Inc. Annual Report 2022
follows:
Years ended December 31,
2021
2022
United States*
Other countries
Net Sales
$ 9,537,124 $ 11,159,341
3,161,379
2,770,288
$ 12,698,503 $ 13,929,629
* 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
certain percentage of those products are subsequently
shipped by ASI to its foreign customers. Based on
sales information provided to the Company by ASI,
66% of ASI’s sales in 2022 were to customers in foreign
countries, compared with 74% in 2021. ASI’s largest
foreign market in both 2022 and 2021 was China,
which accounted for approximately 38% of ASI’s sales
in 2022 and 42% of sales in 2021.
Cash and Cash Equivalents
For financial statement purposes, the Company
considers as cash equivalents all highly liquid
investments with an original maturity of three months
or less at the time of purchase. The Company deposits
cash and cash equivalents with high credit quality
financial institutions and believes that any amounts in
excess of insurance limitations to be at minimal risk.
Cash and cash equivalents held in these accounts are
currently insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to a maximum of $250,000. At
December 31, 2022, approximately $105,000 exceeded
the FDIC limit.
Dividends
On May 10, 2022, the Company’s Board of
Directors declared a semi-annual cash dividend of
$0.37 per share, which was paid on June 1, 2022 to
all stockholders of record as of May 23, 2022. On
November 15, 2022, the Company’s Board of Directors
declared a semi-annual cash dividend of $0.31 per
share, which was paid on December 7, 2022, to all
stockholders of record as of November 28, 2022. In
2022, the Company declared a total of $3,124,137 in
dividends, of which $3,123,492 was paid. The balance
of $645 is payable to stockholders whose old Guardian
Chemical shares have not yet been exchanged
to United-Guardian, Inc. shares and are pending
escheatment.
On May 18, 2021, the Company’s Board of
Directors declared a semi-annual cash dividend of
$0.48 per share, which was paid on June 7, 2021 to
all stockholders of record as of May 31, 2021. On
November 16, 2021, the Company’s Board of Directors
declared a semi-annual cash dividend of $0.65 per
share which was paid on December 7, 2021 to all
stockholders of record as of November 29, 2021. In
2021, the Company declared a total of $5,191,580
in dividends, of which $5,190,033 was paid. The
balance of $1,547 is payable to stockholders whose
old Guardian Chemical shares have not yet been
exchanged to United-Guardian, Inc. shares and are
pending escheatment.
Marketable Securities
The Company’s marketable securities include
investments in equity and fixed income mutual
funds. The Company’s marketable equity securities
are reported at fair value with the related unrealized
and realized gains and losses included in net
income. Realized gains or losses on mutual funds
are determined on a specific identification basis.
The Company evaluates its investments periodically
for possible other-than-temporary impairment by
reviewing factors such as the length of time and extent
to which fair value had been below cost basis, the
financial condition of the issuer and the Company’s
ability and intent to hold the investment for a period of
time which may be sufficient for anticipated recovery
of market value. The Company would record an
impairment charge to the extent that the cost of the
available-for-sale securities exceeds the estimated
fair value of the securities and the decline in value is
determined to be other-than-temporary. During 2022
and 2021, the Company did not record an impairment
charge regarding its investment in marketable
securities because management believes, based on
its evaluation of the circumstances, that the decline in
fair value below the cost of certain of the Company’s
marketable securities is temporary.
Inventories
Inventories are valued at the lower of cost and net
realizable value. Cost is determined using the average
cost method, which approximates cost determined by
the first-in, first-out (“FIFO”) method. Inventory costs
include material, labor and factory overhead.
Property, Plant and Equipment
Property, plant and equipment are carried at cost,
less accumulated depreciation. Major replacements
and betterments are capitalized, while routine
maintenance and repairs are expensed as incurred.
Assets are depreciated under both accelerated and
straight-line methods. Depreciation charged as a result
of using accelerated methods was not materially
different than that which would result from using the
straight-line method for all periods presented. Certain
factory equipment and fixtures are constructed by the
Company using purchased materials and in-house
labor. Such assets are capitalized and depreciated
on a basis consistent with the Company’s purchased
fixed assets.
Estimated useful lives are as follows:
Factory equipment and fixtures 5 - 7 years
Building
Building improvements
40 years
Lesser of useful life
or 20 years
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be
recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to
sell. No impairments were necessary at December 31,
2022 and 2021.
United-Guardian, Inc. Annual Report 2022 11
the pandemic. The Company has six major raw material
vendors that collectively accounted for approximately
90% and 94% of the raw material purchases by the
Company in 2022 and 2021, respectively.
Income Taxes
Income taxes are accounted for under the
asset and liability method. Deferred tax assets and
liabilities are recognized for future tax consequences
attributable to the temporary differences between
the financial statement carrying amounts of assets
and liabilities and their respective tax bases and
operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted
tax rates expected to apply in the years in which those
temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period
that includes the enactment date. Deferred tax assets
are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not
that some portion or all the deferred tax assets will
not be realized.
Uncertain tax positions are accounted for utilizing
a recognition threshold and measurement attribute
for financial statement recognition and measurement
of a tax position taken or expected to be taken in a
tax return. As of December 31, 2022 and 2021, the
Company did not have any unrecognized income tax
benefits. It is the Company’s policy to recognize interest
and penalties related to taxes as interest expense
as incurred. During the years ended December 31,
2022 and 2021, the Company did not record any
tax-related interest or penalties. The Company’s tax
returns for 2019 and all subsequent years are subject
to examination by the United States Internal Revenue
Service and by the State of New York.
Research and Development
Research and development expenses are
expenditures incurred in connection with in-house
research on new and existing products. It includes
payroll and payroll related expenses, outside laboratory
expenditures, lab supplies, and equipment depreciation.
Fair Value of Financial Instruments
Management of the Company believes that the
fair value of financial instruments, consisting of cash
and cash equivalents, accounts receivable, accounts
payable, and accrued expenses, approximates their
carrying value due to their short payment terms and
liquid nature.
Concentration of Credit Risk
Accounts receivable potentially exposes the
Company to concentrations of credit risk. The
Company monitors the amount of credit it allows
each of its customers, using the customer’s prior
payment history to determine how much credit to
allow or whether any credit should be given at all. It
is the Company’s policy to discontinue shipments
to any customer that is substantially past due on its
payments. The Company sometimes requires payment
in advance from customers whose payment record
is questionable. As a result of its monitoring of the
outstanding credit allowed for each customer, as well
as the fact that the majority of the Company’s sales are
to customers whose satisfactory credit and payment
record has been established over a long period of time,
the Company believes that its accounts receivable
credit risk has been reduced.
For the year ended December 31, 2022, four of the
Company’s pharmaceutical wholesalers and cosmetic
ingredient distributors accounted for approximately
72% of the Company’s gross sales during the year
and approximately 81% of its outstanding accounts
receivable at December 31, 2022. For the year ended
December 31, 2021, the same four pharmaceutical
wholesalers and cosmetic ingredient distributors
accounted for a total of approximately 75% of the
Company’s gross sales during the year and 80% of its
outstanding accounts receivable at December 31, 2021.
Vendor Concentration
Most of the principal raw materials used by the
Company consist of common industrial organic and
inorganic chemicals and are available in ample supply
from numerous sources. However, there are some raw
materials used by the Company that are not readily
available or require long lead times. During 2022, the
Company periodically experienced longer lead times due
to shipping delays and supply chain issues related to
12 United-Guardian, Inc. Annual Report 2022
Shipping and Handling Expenses
Shipping and handling costs are classified in
operating expenses in the accompanying statements
of income. Shipping and handling costs were
approximately $97,000 and $82,000 for the years
ended December 31, 2022 and 2021, respectively.
Advertising Expenses
Advertising costs are expensed as incurred. For
the years ended December 31, 2022 and 2021, the
Company incurred approximately $19,000 and $31,000,
respectively, in advertising expense, which primarily
relates to the internet marketing of Renacidin, one of
the Company’s pharmaceutical products.
Earnings Per Share Information
Basic earnings per share are computed by dividing
net income by the weighted average number of
common shares outstanding during the year. Diluted
earnings per share would include the dilutive effect of
outstanding stock options, if any.
New Accounting Standards
In June 2016, the FASB issued ASU-2016-13
“Financial Instruments – Credit Losses”. This guidance
affects organizations that hold financial assets
and net investments in leases that are not accounted
for at fair value with changes in fair value reported
in net income. The guidance requires organizations
to measure all expected credit losses for financial
instruments at the reporting date based on historical
experience, current conditions and reasonable
and supportable forecasts. It is effective for fiscal
years beginning after December 15, 2022. The
Company does not expect that the implementation
of this standard will have a material effect on its
financial statements.
NOTE B
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency
on hand, demand deposits with banks or financial
institutions, and short-term, highly liquid investments
that are both readily convertible to known amounts
of cash and so near their maturity that they present
minimal risk of changes in value because of changes
in interest rates. The following table summarizes the
Company’s cash and cash equivalents:
Years ended December 31,
2021
$ 531,213
2022
$ 333,275
Demand Deposits
U.S. Treasury Bills
(original 2-month
maturity)
497,177
—
Total cash and
cash
equivalents
$ 830,452
$ 531,213
NOTE C
MARKETABLE SECURITIES
Marketable securities include investments in fixed
income and equity mutual funds with maturities greater
than 3 months, which are reported at their fair values.
The disaggregated net gains and losses on the
marketable securities recognized in the income
statement for the years ended December 31, 2022 and
2021 are as follows:
Years ended December 31,
2021
2022
Net losses recognized
during the year on
marketable securities $ (1,046,245)
Less: Net losses (gains)
realized during the
year on marketable
securities sold
during the period
Net unrealized loss
364,074
recognized druing
the reporting year
on marketable
securities still held
at the reporting date $ (682,171)
$ (23,018)
(111,917)
$ (134,935)
United-Guardian, Inc. Annual Report 2022 13
The fair values of the Company’s marketable
securities are determined in accordance with US GAAP,
with fair value being defined as the amount that would
be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants
at the measurement date. As such, fair value is a
market-based measurement that should be determined
based on assumptions that market participants
would use in pricing an asset or liability. As a basis for
considering such assumptions, the Company utilizes
the three-tier value hierarchy, as prescribed by US
GAAP, which prioritizes the inputs used in measuring
fair value as follows:
• Level 1—inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
• Level 2—inputs to the valuation methodology include
quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for
the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
• Level 3—inputs to the valuation methodology
are unobservable and significant to the fair value
measurement.
The Company’s marketable equity securities, which are considered available-for-sale securities, are
re-measured to fair value on a recurring basis and are valued using Level 1 inputs using quoted prices (unadjusted)
for identical assets in active markets. The following tables summarize the Company’s investments:
December 31, 2022
Equity Securities
Fixed income mutual funds
Equity and other mutual funds
Total equity securities
Total marketable securities
December 31, 2021
Equity Securities
Fixed income mutual funds
Equity and other mutual funds
Total equity securities
Total marketable securities
Cost
Fair Value
Unrealized
(Loss) Gain
$ 5,449,227
717,165
6,166,392
$ 6,166,392
$ 4,924,497
729,019
5,653,516
$ 5,653,516
$ (524,730)
11,854
(512,876)
$ (512,876)
Cost
Fair Value
$ 6,814,420
651,748
7,466,168
$ 7,466,168
$ 6,873,333
762,130
7,635,463
$ 7,635,463
Unrealized
Gain
$ 58,913
110,382
169,295
$ 169,295
Investment income is recognized when earned and consists principally of dividend income from equity and
fixed income mutual funds and interest income on United States Treasury Bills. Realized gains and losses on sales
of investments are determined on a specific identification basis.
Proceeds from the sale and redemption of marketable securities amounted to $2,867,671 for the year ended
December 31, 2022, which included realized losses of $364,074. Proceeds from the sale and redemption of
marketable securities for the year ended December 31, 2021 amounted to $4,152,660, which included realized
gains of $111,917.
14 United-Guardian, Inc. Annual Report 2022
NOTE D
INVENTORIES
Inventories consist of the following:
Raw materials
Work in process
Finished products
Total Inventories
December 31,
2022
$ 601,125
16,520
1,054,367
$ 1,672,012
2021
$ 494,348
119,069
797,372
$ 1,410,789
Inventories are valued at the lower of cost and net realizable value. Cost is determined using the average cost
method, which approximates cost determined by the first-in, first-out method. Finished product inventories at
December 31, 2022 and December 31, 2021 are net of a reserve of $64,000 and $35,000, respectively.
NOTE E
INCOME TAXES
The provision for income taxes consists of the following:
Current
Federal
State
Total current provision for income taxes
Deferred
Federal
State
Years ended December 31,
2021
$ 1,287,749
96
1,287,845
2022
$ 850,344
1,590
851,934
(193,766)
—
(68,462)
—
Total deferred benefit from income taxes
(193,766)
(68,462)
Total provision for income taxes
$ 658,168
$ 1,219,383
The following is a reconciliation of the Company’s effective income tax rate to the Federal statutory rate
(dollar amounts have been rounded to the nearest thousand):
Income taxes at statutory federal
income tax rate
State taxes, net of federal benefit
Research & development credits
Non-taxable dividends
Other, net
Provision for income taxes
Years ended December 31,
2022
2021
($)
Tax rate
($)
Tax rate
$ 677,813
1,256
(10,000)
(6,300)
(4,601)
$ 658,168
21.0%
—
(0.3)
(0.2)
(0.1)
20.4%
$ 1,234,364
76
(10,000)
(2,923)
(2,134)
$ 1,219,383
21.0%
—
(0.2)
(0.1)
—
20.7%
United-Guardian, Inc. Annual Report 2022 15
The tax effects of temporary differences which comprise the deferred tax assets and liabilities are as follows:
December 31,
2022
2021
$
4,213
13,440
6,367
92,756
107,704
277,326
$ 501,806
(304,004)
(42,446)
(44,812)
—
(391,262)
$ 110,544
$ 4,253
7,350
86,288
—
—
339,884
$ 437,775
(385,056)
(38,918)
(61,471)
(35,552)
(520,997)
$ (83,222)
the employee becomes fully vested after six years of
employment. The discretionary contribution for 2022
will be paid in February 2023. The amount paid in
February 2023 has been reduced by an amount paid
to Ken Globus upon his retirement from the Company
during 2022. The remaining contribution payable is
included in accrued expenses at December 31, 2022.
NOTE G
GEOGRAPHIC and OTHER INFORMATION
Through its Guardian Laboratories division, the
Company conducts research, product development,
manufacturing, and marketing of cosmetic ingredients,
personal and health care products, pharmaceuticals,
non-pharmaceutical medical products, and proprietary
specialty industrial products. All the products that
the Company markets, exception for Renacidin, are
produced at its facility in Hauppauge, New York.
Renacidin, a urological product, is manufactured for
the Company by an outside contract manufacturer.
The Company’s R&D department not only develops
new products but also modifies and refines existing
products, with the goal of expanding the potential
markets for the Company’s products. Many of the
Deferred tax assets
Allowance for doubtful accounts
Inventories
Accounts payable
R&D expenses
Unrealized loss on marketable securities
Accrued expenses
Total deferred tax assets
Deferred tax liabilities
Accounts receivable
Prepaid expenses
Depreciation on property, plant and equipment
Unrealized gain on marketable securities
Total deferred tax liabilities
Net deferred tax asset (liability)
NOTE F
BENEFIT PLANS
Defined Contribution Plan
The Company sponsors a 401(k) defined
contribution plan (“DC Plan”) that provides for a dollar-
for-dollar employer matching contribution of the
first 4% of each employee’s pay. Employees become
fully vested in employer matching contributions
immediately. Company 401(k) matching contributions
were approximately $81,000 and $80,000 for the years
ended December 31, 2022 and 2021, respectively.
The Company also makes discretionary
contributions to each employee’s account based on
a “pay-to-pay” safe-harbor formula that qualifies the
401(k) Plan under current IRS regulations. For the years
ended December 31, 2022 and 2021, respectively, the
Company’s Board of Directors authorized discretionary
contributions in the amount of $109,000 to be
allocated among all eligible employees. Employees
become vested in the discretionary contributions
as follows: 20% after two years of employment, and
20% for each year of employment thereafter until
16 United-Guardian, Inc. Annual Report 2022
cosmetic ingredients manufactured by the Company,
particularly its Lubrajel line of water-based moisturizing
and lubricating gels, are currently used by many of the
major multinational personal care products companies.
The Company operates in one business segment.
The Company’s products are separated into four
distinct product categories: cosmetic ingredients,
pharmaceuticals, medical lubricants, and industrial
products. Each product category is marketed differently.
The cosmetic ingredients are marketed through a global
network of distributors. These distributors purchase
product outright from the Company and provide the
marketing functions for these products on behalf of
the Company. They in turn receive their compensation
for those efforts by re-selling those products at
a markup to their customers. This enables the
Company to aggressively have its products marketed
without the high cost of maintaining its own in-house
marketing staff. The Company has written marketing
arrangements with only one of its global distributors,
ASI, and that contract renews every two years unless
cancelled for any reason by either party at least 60 days
prior to the expiration of the two-year marketing period
in effect at that time. The current marketing period with
ASI ends on December 31, 2023. The Company’s other
distributors are not under any contractual obligation
to market the Company’s cosmetic ingredients, and
the Company has the ability to cancel those marketing
arrangements at any time upon reasonable notice. All
sales of the Company’s cosmetic ingredients are final
other than product later determined to be defective, and
the Company does not make any sales on consignment.
No prior regulatory approval is needed by the
Company to sell any products other than its
pharmaceutical products. The end users of its products
may or may not need regulatory approvals, depending
on the intended claims and uses of those products.
The pharmaceutical products include a urological
product and a topical bioticide that are sold to end
users primarily through distribution agreements with
the major drug wholesalers. For these products,
the Company does the marketing, and the drug
wholesalers supply the product to the end users,
such as hospitals and pharmacies. The Company’s
marketing effort for Renacidin, its most important
drug product, centers around a separate Renacidin
website. There is currently no active marketing effort
for Clorpactin. Both of these products were originally
developed in the 1950s. Clorpactin pre-dated the need
for a formal New Drug Application (“NDA”), and the
current sterile liquid form of Renacidin is marketed
under an NDA that was approved by the FDA in 1990.
The medical lubricants are not pharmaceutical
products. They consist primarily of water-based
lubricating gels, which are marketed by the Company
directly to manufacturers that incorporate them
into urologic catheters and other medical devices
and products that they sell. These products are
distinguished from the pharmaceutical products in
that, unlike the pharmaceutical products, the Company
is not required to obtain regulatory approval prior to
marketing them. Approvals are the responsibility of
the companies that market the products in which the
Company’s products are used, which are typically
classified as medical devices. However, the Company
is responsible for manufacturing these products
in accordance with current Good Manufacturing
Practices for medical devices, and its manufacturing
facility is subject to regular FDA oversight.
The industrial products are also marketed by the
Company directly to manufacturers, and generally
do not require that the Company obtain regulatory
approval. However, the manufacturers of the finished
products may have to obtain such regulatory approvals
before marketing these products. The Company plans
on discontinuing the sales of its industrial products in
the second quarter of 2023.
The following tables present the significant
concentrations of the Company’s sales. Although a
significant percentage of Customer A’s purchases from
the Company are sold to foreign customers, in table
“b” below all sales to Customer A are included in “The
United States” sales revenue because all shipments to
Customer A are delivered to Customer A’s warehouses
in the U.S.
In addition, there are four customers for the
Company’s medical lubricants that take delivery of their
shipments in the U.S. but potentially ship some of that
product to manufacturing facilities outside the U.S. Since
the Company makes those shipments to U.S. locations,
sales to those customers are also included in the “The
United States” revenue number in the table below.
United-Guardian, Inc. Annual Report 2022 17
NOTE I
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH INVESTING AND
FINANCING ACTIVITIES
As of December 31, 2022, the Company had a
number of unconverted Guardian Chemical shares
that would convert to approximately 447 shares
of United-Guardian, Inc. common stock if all of
the remaining holders of those Guardian shares
converted their Guardian stock to United-Guardian
stock. The Company’s transfer agent continues to try
to locate the holders of those shares in anticipation of
escheating them to the appropriate state jurisdictions.
The Company is currently accruing dividends on
the 447 shares that have not yet been exchanged or
designated for escheatment as of December 31, 2022,
and the Company will continue to do so as dividends
are declared.
NOTE J
RELATED PARTY TRANSACTIONS
During the years ended December 31, 2022 and
2021, the Company paid PKF O’Connor Davies $14,500
and $19,500, respectively, for accounting and tax
services. Lawrence Maietta, a partner at PKF O’Connor
Davies, is a director of the Company.
For the year ended December 31, 2022, the
Company paid Ken Globus, the Company’s previous
President and CEO, $20,000 for consulting services
subsequent to his departure from the Company. The
Company’s consulting agreement with Ken Globus
expires on May 31, 2023. Ken Globus is a director of
the Company and currently serves as Chairman of
the Board of Directors. In addition, in November 2022,
Ken Globus purchased a used vehicle from the
Company for $37,039.
(a) Net Sales
Years ended December 31,
2021
$ 6,872,714
5,748,244
2,175,822
150,387
14,947,167
2022
$ 5,388,365
5,929,216
2,471,555
116,826
13,905,962
Cosmetic Ingredients
Pharmaceuticals
Medical Lubricants
Industrial and other
Gross Sales
Less: Discounts
and allowances
Net Sales
(1,207,459)
$ 12,698,503
(1,017,538)
$ 13,929,629
(b) Geographic Information
United States
Other countries
Net Sales
Years ended December 31,
2021
$ 11,159,341
2,770,288
$ 13,929,629
2022
$ 9,537,124
3,161,379
$ 12,698,503
(c) Gross Sales to Major Customers
Years ended December 31,
2021
$ 5,641,279
2,526,869
1,522,882
1,488,301
3,767,836
$ 14,947,167
2022
$ 4,284,799
2,527,743
1,613,597
1,553,885
3,925,938
$ 13,905,962
Customer A
Customer B
Customer C
Customer D
All other customers
Total Gross Sales
NOTE H
ACCRUED EXPENSES
Accrued expenses at December 31, 2022 and 2021
consist of:
Bonuses
Distribution fees
Payroll and related
expenses
Company 401(k)
contribution
Annual report expenses
Audit fee
Reserve for outdated
material returns
Sales rebates
Other
Total accrued
expenses
2022
$ 175,496
395,536
2021
$ 348,000
359,550
53,475
292,560
94,326
68,349
66,500
109,000
64,038
61,500
369,154
80,926
18,294
313,904
56,857
21,981
$ 1,322,056
$ 1,627,390
18 United-Guardian, Inc. Annual Report 2022
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPACT OF THE CORONAVIRUS
PANDEMIC, GLOBAL SUPPLY CHAIN
INSTABILITY AND INFLATION
While the coronavirus pandemic continues to
impact certain areas of our operations, the current
impact on our financial performance is coming primarily
from 1) higher raw material costs and increased shipping
costs, which had an impact on our gross profit margins
during 2022, and 2) a decrease in cosmetic ingredient
sales in China due to China’s zero-COVID mandate that
was in effect for a substantial part of 2022.
The pandemic did not significantly affect our
ability to obtain raw materials, but due to supply chain
instability, we have experienced longer lead times
and higher prices for many of our raw materials. The
increased raw material prices had an impact on our
gross profit margins in 2022 and may continue to
have an impact on gross profit margins in upcoming
quarters. In response to rising raw material prices, we
have instituted price increases on many of our products,
which will help to reduce the impact on our gross
margins in the future.
As a result of the lingering effects of the coronavirus
pandemic as described above, combined with global
supply chain instability, there continues to be uncertainty
regarding the potential impact on our operations or
financial results. We believe that we are still unable to
provide an accurate estimate or projection as to what
the future impact of the pandemic will be on our future
operations or financial results.
While it is unknown whether inflation will continue to
increase or will begin to mitigate during 2023, continued
inflation is likely to result in further increases in raw
material costs, shipping costs, and internal labor costs,
which could impact our future results of operations.
CRITICAL ACCOUNTING POLICIES
Our financial statements have been prepared
in accordance with Generally Accepted Accounting
Principles in the United States of America (“US
GAAP”). Preparation of financial statements requires
us to make estimates and assumptions affecting the
reported amounts of assets, liabilities, revenues, and
expenses and the disclosure of contingent assets and
liabilities. We use our historical experience and other
relevant factors when developing our estimates and
assumptions, which are continually evaluated. Note A,
Nature of Business and Summary of Significant
Accounting Policies, of the Notes to Financial
Statements, included in Item 8, Financial Statements
and Supplementary Data, of this Annual Report includes
a discussion of our significant accounting policies. The
following accounting policies are those that we consider
critical to an understanding of the financial statements
because their application places the most significant
demands on management’s judgment. Our financial
results might have been different if other assumptions
had been used or other conditions had prevailed.
Marketable Securities
Our marketable securities include investments in
equity and fixed income mutual funds. Our marketable
equity securities are reported at fair value with the
related unrealized and realized gains and losses
included in net income. Realized gains or losses on
mutual funds are determined on a specific identification
basis. We evaluate our investments periodically for
possible other-than-temporary impairment by reviewing
factors such as the length of time and extent to which
fair value had been below cost basis, the financial
condition of the issuer and our ability and intent to
hold the investment for a period of time which may
be sufficient for anticipated recovery of market value.
We record an impairment charge to the extent that the
cost of the available-for-sale securities exceeds the
estimated fair value of the securities and the decline in
value is determined to be other-than-temporary. During
2022 and 2021, we did not record an impairment charge
regarding our investment in marketable securities
because our management believes, based on an
evaluation of the circumstances, that the decline in
fair value below the cost of certain of our marketable
securities is temporary.
Revenue Recognition
We record 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
United-Guardian, Inc. Annual Report 2022 19
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 2022 and 2021, 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.
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 “Ex-Works” 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.
20 United-Guardian, Inc. Annual Report 2022
We do 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 under ASC Topic 606-10-32-8. We
have 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. Our standard credit terms, which vary
depending on the customer, range between 30 and 60
days. We use our judgment on a case-by-case basis to
determine our ability to collect outstanding receivables
and provide allowances for any receivables for which
collection has become doubtful. As of December 31,
2022 and December 31, 2021, the allowance for
doubtful accounts receivable was $20,063 and $20,252,
respectively. Prompt-pay discounts are offered to
some customers; however, due to the uncertainty of
the customers taking the discounts, the discounts are
recorded when they are taken.
We have distribution agreements with certain
distributors of our pharmaceutical products that entitle
those distributors to distribution and services-related
fees. We record distribution fees, and estimates of
distribution fees, as offsets to revenue.
Accounts Receivable Allowance
We perform ongoing credit evaluations of our
customers and adjust credit limits, as determined by a
review of current credit information. We continuously
monitor collection and payments from customers
and maintain an allowance for doubtful accounts
based upon historical experience, anticipation of
uncollectible accounts receivable and any specific
customer collection issues that have been identified.
While our credit losses have historically been low and
within expectations, we may not continue to experience
the same credit loss rates that have historically been
attained. The receivables are highly concentrated in
a relatively small number of customers. Therefore, a
significant change in the liquidity, financial position,
or willingness to pay timely, or at all, of any one of our
significant customers would have a significant impact
on our results of operations and cash flows.
Inventory Valuation Allowance
We continue to experience global competition
In conjunction with our ongoing analysis of
inventory valuation, management constantly monitors
projected demand on a product-by-product basis.
Based on these projections, management evaluates
the levels of write-downs required for inventory on hand
and inventory on order from contract manufacturers.
Although we believe that we have been reasonably
successful in identifying write-downs in a timely manner,
sudden changes in buying patterns from customers,
either due to a shift in product interest and/or a
complete pull back from their expected order levels,
may result in the recognition of larger-than-anticipated
write-downs. We have performed an evaluation of our
inventory on hand as of December 31, 2022, and believe
the reserve is adequate to cover any slow-moving or
obsolete inventory. We do not believe the value of our
finished products, work in process or raw material
inventories have been adversely affected by the current
inflationary environment.
RESULTS OF OPERATIONS
Sales
Sales decreased by approximately 9%, from
$13,929,629 in 2021 to $12,698,503 in 2022. The
decrease in sales was primarily due to a decrease in
sales of our cosmetic ingredient products, specifically a
decrease of 28% in sales to our largest distributor, ASI, in
2022 compared with 2021.
(a) Cosmetic Ingredients
Sales of our cosmetic ingredients decreased
by approximately 25%, from $6,872,714 in 2021,
to $5,167,909 in 2022. The decrease in sales of
cosmetic ingredients was caused by the following
factors: 1) supply chain issues faced by certain
contract manufactures caused them to overstock
products in 2021 in order to avoid not being able
to obtain products in 2022, which resulted in a
reduction of purchases of these products by certain
contract manufacturers in 2022, and 2) lower
demand in Asia, especially in China, due to China’s
zero-COVID mandate that was in place for much of
2022. Sales to our other four distributors decreased
by a net of approximately 11%, and sales to four
of our small direct cosmetic ingredient customers
decreased by approximately 54%.
from Asian and European companies that
manufacture and sell products that are competitive
with our products. These competitive products
are usually sold at a lower price than our products;
however they may not compare favorably to the
level of performance and quality of our products.
The strengthening of the U.S. dollar in 2022,
which reached its highest level in 20 years, made
our products less competitive, as they became
more expensive in other countries. We continue
to work closely with our network of distributors to
price our products as competitively as possible
and, when appropriate, to offer additional volume
discounts and more aggressive pricing to maintain
and increase sales and expand our customer base.
We expect that this competitive environment
will continue in 2023 and we plan to enhance our
competitive position by strengthening our core
capabilities and investing in new products, especially
in the area of naturally-derived products. We will also
continue providing high-quality products, excellent
technical support, and the reliability our customers
have come to expect from us.
(b) Pharmaceuticals
Because there are fees, rebates, and
allowances associated with sales of our two
pharmaceutical products, Renacidin and
Clorpactin, discussion of our 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 two pharmaceutical products, Renacidin
and Clorpactin, together increased by 3%, from
$5,748,244 in 2021 to $5,929,216 in 2022.
Gross sales of Renacidin increased by 3%, from
$5,041,460 in 2021 to $5,181,190 in 2022, and
gross sales of Clorpactin increased by 6% from
$706,784 in 2021 to $748,026 in 2022.
Net sales of our pharmaceutical products
increased by approximately 4% in 2022 compared
with the same period in 2021. The increase in net
sales was due to the combination of 1) an increase
in gross sales of both of our pharmaceutical
products, and 2) a decrease in certain
pharmaceutical-related rebates and allowances.
The decrease in pharmaceutical-related rebates
and allowances in 2022 was primarily due to a
United-Guardian, Inc. Annual Report 2022 21
decrease in rebates on sales of our products to the
VA and a reduction in sales returns.
(c) Medical Lubricants
Sales of our medical lubricants increased by
approximately 14% in 2022, from $2,171,204 in
2021 to $2,470,163 in 2022. The increase in sales
was driven by higher demand from one of our larger
contract manufacturer customers located in China,
whose sales doubled in 2022 compared to 2021.
(d) Industrial Products
Sales of our industrial products decreased
by 22% in 2022 compared with 2021. We plan
on discontinuing the manufacturing and sales of
specialty industrial products in the second quarter
of 2023. These products sales represent less than
2% of total sales.
Gross Profit on Sales
Gross profit on sales was 53% in 2022 compared
with 59% in 2021. The decrease in gross profit was due
to 1) a decrease in sales of our cosmetic ingredients in
2022 compared to 2021. These products carry a higher
profit margin than our pharmaceutical products. In 2022,
our pharmaceutical sales as a percentage of gross
sales was 43% compared to 38% in 2021; 2) increased
raw material and shipping costs in 2022 compared with
2021; 3) the recording of $206,621 in rebates payable
to one of our marketing partners during 2022; and
4) the recording of a one-time Employee Retention
Credit (“ERC”) in the amount of approximately $105,000
in 2021, which reduced cost of sales during that period.
Operating Expenses
Operating expenses increased by approximately
7%, from $2,035,970 in 2021 to $2,174,127 in 2022. The
increase was mainly attributable to the following factors:
1) increases in fees paid to the independent members of
our Board of Directors during 2022 for special projects;
2) an increase in payroll and payroll related expenses,
insurance expense and utilities; and 3) the recording of a
one-time ERC in the amount of approximately $31,000 in
2021, which reduced operating expenses for that period.
We anticipate that operating expenses will remain
relatively consistent for 2023.
Research and Development Expenses
Research and development expenses increased by
approximately 3%, from $478,642 in 2021 to $490,770 in
2022. The increase was primarily related to an increase
22 United-Guardian, Inc. Annual Report 2022
in payroll and payroll related expenses combined with
the recording of an ERC during 2021 in the amount of
$28,000 which reduced R&D expenses for that period.
Investment Income
Investment income increased by approximately
1%, from $233,857 in 2021 to $236,695 in 2022. The
increase was due to an increase in dividend income
from both stock and bond mutual funds.
Net Loss on Marketable Securities
The net loss on marketable securities increased
from a net loss of $23,018 in 2021 to a net loss of
$1,046,245 in 2022. The increased loss was primarily
due to 1) the recognition of increased unrealized
losses during 2022 due primarily to rising interest rates
combined with the downward trajectory of the financial
markets during 2022. Our portfolio of marketable
securities is predominantly invested in fixed income
mutual funds. When interest rates began to rise during
the year, the value of these funds declined; and
2) increased realized losses on those same fixed
income mutual funds that were sold during the year.
During 2021, we recognized realized gains of $111,917
from the sale of marketable securities, while in 2022,
we recorded $364,074 in realized losses from the sale
of marketable securities.
Provision for Income Taxes
The provision for income taxes decreased from
$1,219,383 in 2021 to $658,168 in 2022. This decrease
was due to a decrease in income before taxes. Our
effective income tax rate was 20.4% in 2022 and 20.7%
in 2021.
Liquidity and Capital Resources
Working capital decreased from $9,245,629 at
December 31, 2021 to $8,596,939 at December 31,
2022. The current ratio increased from 5.0 to 1 at
December 31, 2021 to 7.3 to 1 at December 31, 2022.
The decrease in working capital was mainly due to
a decrease in marketable securities and accounts
receivable.
Accounts receivable (net of allowance for doubtful
accounts) as of December 31, 2022 decreased
from $1,813,346 in 2021 to $1,427,576 in 2022. The
decrease in accounts receivable was due to a decrease
in sales during the third and fourth quarter of 2022.
The receivables turnover, or “Days Sales Outstanding”,
for 2022, was 47 days, compared with 42 days in 2021.
The increase in Days Sales Outstanding was primarily
due to an increase in the sales of our medical lubricant
products in 2022. These products are primarily sold to
customers located overseas and the payment terms
for these customers is typically 60 days, as compared
with 30-45 days for our domestic customers. The
allowance for doubtful accounts receivable decreased
from $20,252 in 2021 to $20,063 in 2022, and we
believe that the net balance of our accounts receivable
as of December 31, 2022 was, and continues to be,
fully collectible.
We generated cash from operations of $2,525,169
in 2022 compared with $5,313,277 in 2021. The
decrease in 2022 was primarily due to a decrease in net
income in 2022 compared with 2021, combined with
decreases in accounts payable, accrued expenses and
deferred revenue.
Net cash provided by investing activities was
$897,562 for the year ended December 31, 2022. Net
cash used in investing activities was $183,475 for the
year ended December 31, 2021. The increase in net
cash provided by investing activities was mainly due an
increase in net proceeds from the sale of marketable
securities combined with a decrease in acquisitions
of property, plant and equipment in 2022 compared
with 2021.
Net cash used in financing activities was $3,123,492
and $5,190,033 for the years ended December 31, 2022
and 2021, respectively. The decrease was due to the
payment of lower dividends in 2022 compared with
2021. During 2022, we paid dividends of $0.68 per
share compared with $1.13 per share in 2021.
We believe that our working capital is sufficient to
support our operating requirements for the next fiscal
year. Our long-term liquidity position will be dependent
upon our ability to generate sufficient cash flow from
profitable , and we expect to continue to use our cash
to make dividend payments, purchase marketable
securities, and to take advantage of other opportunities
that may arise that are in the best interest of our
Company and our shareholders.
We expect to incur costs of approximately $100,000
in the first six months of 2023 in connection with an
upgrade to our building sprinkler system.
We have no off-balance-sheet transactions that
have, or are reasonably likely to have, a current or future
effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
New Accounting Pronouncements
See Note “A” to the financial statements regarding
new accounting pronouncements, which note is
incorporated herein by reference.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock is currently traded on the NASDAQ Global Market, under the symbol “UG”.
Holders of Record
As of March 1, 2023, there were 371 holders of record of Common Stock.
Cash Dividends
On May 10, 2022, our Board of Directors declared a semi-annual cash dividend of $0.37 per share, which
was paid on June 1, 2022 to all stockholders of record as of May 23, 2022. On November 15, 2022, our Board of
Directors declared a semi-annual cash dividend of $0.31 per share, which was paid on December 7, 2022 to all
stockholders of record as of November 28, 2022.
On May 18, 2021, our Board of Directors declared a semi-annual cash dividend of $0.48 per share, which
was paid on June 7, 2021 to all stockholders of record as of May 31, 2021. On November 16, 2021, our Board of
Directors declared a semi-annual cash dividend of $0.65 per share, which was paid on December 7, 2021 to all
stockholders of record as of November 29, 2021.
United-Guardian, Inc. Annual Report 2022 23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of United-Guardian, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of United-Guardian, Inc. (the “Company”) as of December 31,
2022 and 2021, the related statements of income, stockholders’ equity, and cash flows, for the years then ended,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and
the results of its operations and its cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,
or complex judgments. We determined that there are no critical audit matters.
/s/ Baker Tilly US, LLP
We have served as the Company’s auditor since 2019.
Uniondale, NY
March 16, 2023
24 United-Guardian, Inc. Annual Report 2022
Registrar and Transfer Agent
Continental Stock Transfer & Trust Company
1 State Street, 30th Floor
New York, NY 10004
Legal Counsel
Ruskin Moscou Faltischek, P.C.
Uniondale, NY
Auditors
Baker Tilly US, LLP
Melville, NY
Main Office and Plant
230 Marcus Blvd.
Hauppauge, NY 11788
Mailing Address
P.O. Box 18050
Hauppauge, NY 11788
Tel: (631) 273-0900
Fax: (631) 273-0858
Website: www.u-g.com
NOTE: Upon written request, a copy of the Company’s
most recent Annual Report on Form 10-K will be
furnished without charge. A fee will be charged for copies
of any exhibits to such report. Contact: Corporate
Secretary, United-Guardian, Inc., P.O. Box 18050, Hauppauge,
NY 11788.
EXCELLENCE THROUGH INNOVATION®
230 Marcus Boulevard
P.O. Box 18050
Hauppauge, New York 11788
Telephone (631) 273-0900
Fax (631) 273-0858
www.u-g.com