What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-22 compared with 2020-03-26 · 388 added, 283 removed, 23 unchanged (97% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Impact of the Coronavirus Pandemic

In March 2020, the

spread of the coronavirus (COVID-19) began to cause disruptions among businesses and markets worldwide.

On March 20, 2020, the

Governor of New York issued an executive order which closed non-essential businesses.

The Company, as a manufacturer of pharmaceutical

and medical products, was considered an essential business, and continued to operate throughout the pandemic.

When the spread of

the coronavirus was at its worst in New York, the Company modified its staffing schedule in order to decrease employee density

as much as possible, with employees working 7 days a week on altered hours, and later on an every-other-week work schedule with

limited hours.

Despite the reduced schedule the Company was able to maintain adequate production and shipping schedules and was

able to fill all orders on a timely basis.

As things improved, the Company gradually increased its working hours and employee density

until it resumed its regular working schedule in June 2020.

Throughout the pandemic the Company was able to maintain its full payroll,

all employees received their full pay, and no employees were furloughed or dismissed.

While sales of the

Company’s pharmaceutical products have not been impacted by the coronavirus pandemic, sales of the Company’s cosmetic

ingredients and medical products were significantly impacted, particularly in the second half of 2020.

Sales of the Company’s

cosmetic ingredients in 2020 decreased by 33% compared with 2019.

The decrease was primarily the result of lower sales to ASI,

the Company’s marketing partner in China, and was caused primarily by factors related to the coronavirus, including (a) lower

consumer demand in China for many of the products in which the Company’s products are used;

(b) manufacturing disruptions

in China resulting from the impact of the coronavirus on manufacturing facilities;

and (c) excess inventory levels due to overstocking

on the part of both the Company’s marketing partner for China as well its sub-distributors in China.

The overstocking was

due to the uncertainty on the part of the marketing partner about being able to continue to get product from the Company during

the pandemic.

Since the Company’s

cosmetic ingredients are marketed in many different countries, it is difficult to project the future impact of the coronavirus

pandemic on the Company’s global cosmetic ingredient sales, since the virus continues to impact different countries at different

times and to very different extents.

The Company is hopeful that as vaccinations increase, the global economic situation will gradually

However, based on the current situation, as well as future projections by different analysts, the Company anticipates

that the pandemic will continue to negatively impact sales of the Company’s cosmetic ingredients throughout most or all of

UNITED-GUARDIAN, INC.

The Company also believes

that the coronavirus impacted sales to two of the Company’s four major medical product customers whose orders decreased in

2020, and may have been a factor in the loss of a third (although the Company has not yet been able to confirm that as the reason

for that lost business).

Overall sales of the Company’s medical products decreased by 31% compared with the corresponding

periods in 2019.

With the continuing

uncertainty as to what the duration and future impact of the pandemic will be, the Company is unable to provide an accurate estimate

or projection as to what the continuing impact of the coronavirus will be on the Company’s operations or its financial results

in the future.

However, as of the date of this report, the Company does not anticipate that the coronavirus pandemic will affect

the ability of the Company to obtain raw materials and maintain production.

The Company has price protection on some but not all

of its most important raw materials, has multiple sources for many of its raw materials, and has been able to maintain sufficient

inventory and production levels to enable it to fulfill sales orders on a timely basis.

Critical Accounting Policies

The Company’s 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 the Company to make estimates and assumptions affecting the reported amounts of assets,

liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities.

The Company uses its historical experience

and other relevant factors when developing its 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 the Company’s significant accounting policies.

following accounting policies are those that the Company considers critical to an understanding of the financial statements because

their application places the most significant demands on the Company’s judgment.

The Company’s financial results might

have been different if other assumptions had been used or other conditions had prevailed.

The Company’s

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 the Company to make estimates and assumptions affecting the

reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities.

uses its historical experience and other relevant factors when developing its estimates and assumptions, which are continually

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 the Company’s significant

accounting policies.

The following accounting policies are those that the Company considers critical to an understanding of the

financial statements because their application places the most significant demands on the Company’s judgment.

The Company’s

financial results might have been different if other assumptions had been used or other conditions had prevailed.

Marketable Securities

The Company’s marketable securities include

investments in equity and fixed income mutual funds, and U.S.

The Company’s

marketable securities include investments in equity and fixed income mutual funds, and U.S.

Government securities.

The Company’s marketable equity securities

are reported at fair value with the related unrealized and realized gains and losses included in net income.

U.S Treasury Bills

are considered debt securities and any realized gains or losses are reported in other comprehensive 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 records 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 2019 and 2018, 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.

The Company’s

marketable equity securities are reported at fair value with the related unrealized and realized gains and losses included in

U.S Treasury Bills are considered debt securities and realized gains or losses, if any, are reported in other comprehensive

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 records

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 2020 and 2019, 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.

UNITED-GUARDIAN, INC.

Revenue Recognition

The Company recognizes revenue from sales of

its cosmetic ingredients, medical products, and industrial products at the time the 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, control, and responsibility for the

shipment passes to the customer.

Sales of these products are deemed final, and there is no 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;

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, which generally are estimated and recorded in the same period that

the revenues are recognized.

Such variable consideration, primarily related to the sale of the Company’s pharmaceutical products,

includes chargebacks from the United States Department of Veterans Affairs (“VA”), rebates in connection with participation

in Medicare and Medicaid 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 2020 and 2019,

the Company participated in various government drug rebate programs related to the sale of Renacidin, its most important pharmaceutical

These programs include the Medicaid Drug Rebate Program (MDRP), Section 340B Drug Pricing Program (340B), Veterans Affairs

Federal Supply Schedule (FSS), and the Medicare Part D Coverage Gap Discount Program (CGDP).

These programs required the Company

to either sell its product at a discounted price, or, in the case of Medicaid, to pay a significant rebate to the various states

where Renacidin is provided to Medicaid patients.

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 a result of

the overly burdensome nature of the Medicaid rebates it became clear to the Company in October 2020 that it was no longer

profitable for the Company to continue participating in the Medicaid or the 340B programs.

As a result, on October 30, 2020,

the Company informed the Centers for Medicare & Medicaid Services (CMS) and the Health Resources and Services

Administration (HRSA) of its intention to terminate its Medicaid Drug Rebate Agreement and its 340B Drug Pricing Agreement,

effective December 31, 2020.

The Company will, however, continue to participate in the other government discount and rebate

programs, specifically the Veterans Affairs FSS Program and the Medicare Part D Coverage Gap Program (CGDP).

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 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;

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 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.

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 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.

As of December 31,

2019 and December 31, 2018, the allowance for doubtful accounts receivable amounted to $21,178 and $16,895, respectively.

discounts are offered to some customers;

however, due to the uncertainty of the customers actually taking the discounts, the discounts

are recorded when they are taken.

The Company’s 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, primarily related to the sale of the Company’s pharmaceutical products, includes chargebacks

from the United States Department of Veterans Affairs (“VA”), rebates in connection with participation in Medicare

and Medicaid 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.

The Company has distribution fee contracts with

certain distributors of its pharmaceutical products that entitles them to receive distribution and services-related fees.

records distribution fees and estimates of distribution fees as offsets to revenue.

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).

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.

The Company has not experienced significant fluctuations between estimated

allowances and actual activity.

UNITED-GUARDIAN, INC.

Accounts Receivable Allowance

The Company performs ongoing credit evaluations

of the Company’s customers and adjusts credit limits, as determined by a review of current credit information.

continuously monitors collection and payments from customers and maintains an allowance for doubtful accounts based upon historical

experience, the Company’s anticipation of uncollectible accounts receivable and any specific customer collection issues that

have been identified.

While the Company’s credit losses have historically been low and within expectations, the Company 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 the Company’s significant customers would have a significant impact on the Company’s

results of operations and cash flows.

Inventory Valuation Allowance

In conjunction with the Company’s 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 the Company believes that it has 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.

The timing between

recognition of revenue for product sales and the receipt of payment is not significant.

Due to COVID-19, the Company experienced

minor delays in receiving payments from certain customers that were impacted by the pandemic;

however, the negative impact of those

delayed payments was 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.

As of December 31, 2020 and December 31,

2019, the allowance for doubtful accounts receivable was $14,017 and $21,178, 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

The Company has distribution

agreements with certain distributors of its pharmaceutical products that entitle those distributors to distribution and services-related

The Company records distribution fees, and estimates of distribution fees, as offsets to revenue.

Accounts Receivable

The Company performs

ongoing credit evaluations of the Company’s customers and adjusts credit limits, as determined by a review of current credit

The Company continuously monitors collection and payments from customers and maintains an allowance for doubtful accounts

based upon historical experience, the Company’s anticipation of uncollectible accounts receivable and any specific customer

collection issues that have been identified.

While the Company’s credit losses have historically been low and within expectations,

the Company 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 the Company’s significant customers would have a significant impact

on the Company’s results of operations and cash flows.

As mentioned above, the Company has not experienced significant issues

with the collection of its accounts receivable balances due to the COVID-19 pandemic.

Inventory Valuation

In conjunction with

the Company’s ongoing analysis of inventory valuation, management constantly monitors projected demand on a product-by-product

Based on these projections, management evaluates the levels of write-downs required for inventory on hand and inventory

on order from contract manufacturers.

Although the Company believes that it has 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.

The Company has

performed an evaluation of its inventory on hand as of the date of this report and believes the reserve is adequate to cover any

slow-moving or obsolete inventory.

The Company does not believe the value of its finished products, work in process or raw material

inventories have been adversely affected by the coronavirus pandemic.

Results of Operations

Year ended December 31, 2019 compared with the year ended December

Sales increased from $13,445,565 in 2018 to

$13,599,084 in 2019, an increase of $153,519 (1%).

The increase was due primarily to increases in sales of the Company’s

pharmaceutical products, primarily Renacidin, combined with an increase in sales of many of the Company’s medical products.

Those increases were partially offset by decreases in sales of the Company’s cosmetic ingredients.

The net increase in sales was the result of the following specific

changes in sales in the different product categories:

(a) Cosmetic Ingredients :

Sales of the Company's cosmetic ingredients decreased

from $7,529,487 in 2018 to $6,377,323 in 2019, a decrease of $1,152,164 (15%).

The decrease was attributable primarily to decreases

in sales of the Company’s Lubrajel products to ASI, the Company’s largest marketing partner.

Sales to ASI decreased

by $718,440 (12%) from $6,067,821 in 2018 to $5,349,381 in 2019.

Aggregate sales to the Company’s other marketing partners

decreased by $410,494 (29%) from $1,419,531 in 2018 to $1,009,037 in 2019.

The largest decrease was to the Company’s former

marketing partner in Korea, which saw a decrease in sales of $243,341(73%), from $331,788 in 2018 to $88,447 in 2019.

also a decrease of $23,230 in sales of the Company’s cosmetic ingredients to three other direct customers of the Company.

Year ended December 31, 2020 compared with

the year ended December 31, 2019:

Sales decreased 19%

from $13,599,084 in 2019 to $10,986,081 in 2020.

The decrease was due primarily to decreases in sales of the Company’s cosmetic

products and non-pharmaceutical medical products.

Those decreases were partially offset by an increase in sales of the Company’s

pharmaceutical products, primarily Renacidin.

UNITED-GUARDIAN, INC.

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, in 2019 and 2018, 75% of ASI’s

sales were to customers in foreign countries.

ASI’s largest foreign market in both 2019 and 2018 was China, which accounted

for approximately 49% of ASI’s sales in 2019 and 55% of sales in 2018.

The decrease in sales to ASI was primarily the result

of a decrease in ASI’s sales of the Company’s cosmetic ingredients in China, which has been a significant market for

the Company’s products over the past few years.

Based on information provided to the Company by ASI, there have been two

reasons for the decline in sales.

First, there has been a decrease in demand for a cosmetic product line that had been using significant

amounts of one of the Company’s Lubrajel products.

While still a significant market, the demand for those products has declined

somewhat over the past year.

Second, the Company is competing with lower-priced manufacturers in Asia that are marketing competitive

products and are able to sell those products at a lower price.

The Company is working closely with ASI to be more competitive with

those products, and is hopeful that it will be able to recover some of the business it has lost to these lower-cost producers.

Sales of the Company’s cosmetic ingredients in Europe

decreased slightly in 2019 compared with 2018.

There continues to be competition in Europe from Asian and European competitors

selling copies of the Company’s products at much lower prices.

The strengthening of the U.S.

dollar relative to the Euro

also contributed to the increasingly competitive situation in Europe.

The Company continues to work closely with its marketing

partners to be as competitive as possible and, when appropriate, to offer additional volume discounts and more aggressive pricing

in order to maintain and increase sales and bring in new customers.

However, the Company expects the European market to remain

very competitive based on the increasing sales of these lower-cost products, and for that reason is concentrating its R&D efforts

on developing new and unique products that these other companies do not have.

The decrease in sales was the result of

the following specific changes in sales in the different product categories:

(a) Cosmetic Ingredients :

Sales of the Company's cosmetic

ingredients decreased from $6,377,323 in 2019 to $4,274,586 in 2020.

The decrease was attributable primarily to a decrease in sales

of the Company’s Lubrajel line of products to ASI, the Company’s largest marketing partner, whose purchases decreased

by 40% in 2020.

Aggregate sales to the Company’s four other marketing partners increased from $914,690 in 2019 to $992,951

That increase was primarily attributable to Company’s marketing partner in the UK, whose sales increased from $361,156

in 2019 to $445,402 in 2020.

There was also a small increase in sales of the Company’s cosmetic ingredients to three other

direct customers of the Company.

In addition to the above changes

in marketing partner sales, as a result of the termination in December 2019 of the Company’s marketing agreement with its

former marketing partner in Korea, there were no sales to that former marketing partner in 2020, compared with sales of $88,447

Since December 2019 the Company’s marketing efforts in Korea are being handled by ASI.

The decrease in sales to ASI

was due to a number of factors, the principal one being the impact of the coronavirus pandemic, which significantly impacted ASI’s

sales of the Company’s products in China.

The decrease in ASI sales in China was the result of a number of factors, including

(a) lower consumer demand in China for many of the products in which the Company’s products are used;

(b) manufacturing disruptions

in China resulting from the impact of the coronavirus on manufacturing facilities;

and (c) excess inventory levels of the Company’s

products resulting from overstocking on the part of both the Company’s marketing partner for China as well as its sub-distributors

in China, due to the uncertainty of being able to restock product during the pandemic.

Since the Company’s cosmetic ingredients

are marketed globally by its marketing partners in many different countries, and since the virus continues to impact countries

at different times and to very different extents, it is difficult to project the future impact of the coronavirus pandemic on the

Company’s global cosmetic ingredient sales.

Until the global crisis passes it is likely that there will continue to be a

negative impact on the Company’s sales of its cosmetic ingredients, as well as, to a lesser extent, its non-pharmaceutical

medical 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 certain percentage of those

products are subsequently shipped by ASI to its foreign customers.

Based on sales information provided to the Company by ASI, 68%

of ASI’s sales in 2020 were to customers in foreign countries, compared to 75% in 2019.

ASI’s largest foreign market

in both 2020 and 2019 was China, which accounted for approximately 33% of ASI’s sales in 2020 and 49% of sales in 2019.

There continues to be global

competition from Asian and European competitors selling products that are competitive with those sold by the Company and which

are marketed at lower prices than those produced by the Company.

The weakening of the U.S.

dollar relative to the Euro in 2020

made the Company’s products a little more competitive in 2020 than they had been in the past few years when the dollar had

continued to strengthen against the Euro.

The Company continues to work closely with its marketing partners to price its products

as competitively as possible and, when appropriate, to offer additional volume discounts and more aggressive pricing in order to

maintain and increase sales and bring in new customers.

However, the Company expects the European market to remain very competitive

based on the continuing competition from lower-cost competitors, and for that reason it is concentrating its R&D efforts on

developing new and unique products that these other companies do not have.

The Company expects to introduce several such products

The Company has been informed by ASI, its current marketing

partner in Korea, that sales of the Company’s products in Korea may be negatively impacted as a result of the spread of the

coronavirus, since in Korea there has always been significant sales of cosmetic products to Chinese tourists.

With the drastic

reduction in travel by Chinese tourists there is an expectation on the part of cosmetic manufacturers that the demand for cosmetic

products will decrease, especially if the virus continues to spread, which will mean that cosmetic manufacturers’ purchases

of the raw materials used to make their cosmetic products, including those produced by the Company, will be reduced.

also believes that there is a strong possibility that sales in China, Korea, Europe, the U.S., and other parts of the world may

be impacted as a result of temporary business closures and the suspension of normal activities due to the spread of the virus.

It is too early to determine what the impact will be on the Company’s sales in the coming year, since that will depend to

a large extent on the spread of the virus over the coming months.

Although the Company does source some of its raw materials

from areas being impacted by the coronavirus, it has multiple sources for many, but not all, of its raw materials.

doesn’t it is increasing its inventory in case there is a temporary delay in obtaining some of those materials.

the present time the Company’s production of cosmetic ingredients, as well as its other products, has not yet been impacted

by the spread of the coronavirus, the situation is changing rapidly, both in the U.S.

and overseas, and there is a possibility

that businesses, including the Company’s business, might have to temporarily shut down, which could have a significant impact

on sales until production can be resumed.

UNITED-GUARDIAN, INC.

Pharmaceuticals :

Sales of the Company’s two pharmaceutical products,

Renacidin and Clorpactin, together increased by $581,099 (17%), from $3,510,720 in 2018 to $4,091,819 in 2019, with Renacidin accounting

for most of the increase.

Sales of Renacidin increased by $555,748 (19%) from $2,932,862 in 2018 to $3,488,610 in 2019, and accounted

for approximately 26% of the Company’s sales in 2019, as compared with 22% in 2018.

The Company believes that much of this

increase has been the result of the increased awareness of the product by both patients, caregivers, and physicians as a result

of the launch of the Company’s web site dedicated to Renacidin, the continuing efforts to promote the product on the internet,

and the work being done by the Company’s internet marketing consultant to make sure that the product comes up in as many

relevant internet searches as possible.

The Company intends to continue these successful internet marketing efforts during 2020.

As a result of the increase in sales of the Company’s

pharmaceutical products, there was an increase in allowances for distribution fees, VA chargebacks, Medicaid and Medicare rebates,

and outdated material returns.

Those fees, rebates, and allowances increase proportionally as sales of the Company’s pharmaceutical

products increase, and in 2019 those expenses increased by $142,257 (14%) over 2018, primarily due to the increase in Renacidin

(b) Medical (non-pharmaceutical) products :

Sales of the Company’s medical products increased

by $736,665 (33%) from $2,232,141 in 2018 to $2,968,806 in 2019.

The increase was primarily the result of a 58% increase in sales

of Lubrajel MG, along with increases in sales of some of the Company’s other medical lubricants, including Lubrajel RC and

While some of the increases were due to fluctuations in purchasing patterns of the customers for these products, there

was also an increase in demand from some of the customers, particularly for the Lubrajel MG, where one of the major customers for

that product, a contract manufacturer and packager, had a 125% increase in purchases as a result of securing new customers for

Sales of the Company's industrial products, as well

as other miscellaneous products, decreased by $12,079 (7%) from $173,217 in 2018 to $161,138 in 2019.

(b) Pharmaceuticals :

Because there are fees, rebates,

and allowances associated with sales of the Company’s two pharmaceutical products, Renacidin and Clorpactin, discussion of

the Company’s pharmaceutical sales includes references to both gross sales (before fees, rebates and allowances) and

net sales (after fees, rebates and allowances).

Net sales of the Company’s two pharmaceutical products, Renacidin

and Clorpactin, together increased from $4,091,817 in 2019 to $4,519,052 in 2020, with Renacidin accounting for most of the increase.

Gross sales of Renacidin increased from $4,635,019 in 2019 to $5,347,827 in 2020, while gross sales of Clorpactin

increased from $603,209 in 2019 to $611,878 in 2020.

The Company believes that much of the increase in Renacidin sales was due

to increased awareness of the product by both patients, caregivers, and physicians, which the Company believes was the result of

the Company’s internet advertising campaign, along with its dedicated Renacidin.com website.

The Company intends to continue

these internet marketing efforts during 2021.

As a result of the increase

in sales of the Company’s pharmaceutical products, there was a commensurate increase in the allowances related to the sales

of those products, including distribution fees, chargebacks on VA sales, Medicaid and Medicare rebates, and outdated material returns.

Those fees, rebates, chargebacks, and other allowances increase proportionally as sales of the Company’s pharmaceutical products

increase, and in 2020 the allowances related to pharmaceutical sales increased by $294,244 (26%) compared with 2019, primarily

due to the increase in Renacidin sales.

Sales of the Company’s

medical products decreased from $2,968,806 in 2019 to $2,052,961 in 2020.

Approximately 37% of that decrease was due to the loss

of one of the Company’s four major medical product customers.

One of the other customers is located in China, and the Company

believes that the decrease in orders from that customer, as well as from one of its other major medical product customers not in

China, was related to the impact of the coronavirus pandemic.

The Company is hopeful that as the global markets begin to recover

from the pandemic, orders from those affected customers will gradually increase.

(d) Industrial and other products:

Sales of the Company's industrial

products, as well as other miscellaneous products, decreased from $161,138 in 2019 to $139,482 in 2020.

The decrease was primarily

due to the decrease in sales of one of the Company’s industrial products to one customer.

due to a decrease in sales to two of the Company’s industrial product customers, which operate in areas whose operations

were negatively impacted by the Coronavirus pandemic.

Gross Profit on Sales

Gross profit on sales was 58% in 2019 compared

with 60% in 2018.

The decrease in gross profit in 2019 compared to 2018 was due to the increased sales of Renacidin in 2019 compared

This product carries a lower gross profit margin than the Company’s other products.

Gross profit on sales

was 56% in 2020 compared with 58% in 2019.

The decrease was due to the increased sales of Renacidin in 2020 compared with 2019,

combined with the decrease in sales of the Company’s Lubrajel line of products, which carry a higher profit margin.

carries a lower gross profit margin than the Company’s other products due to the contract manufacturing costs connected with

the manufacture of the product, as well as the rebates, discounts and allowances associated with it.

In 2020, Renacidin represented

26% of the Company’s total sales compared to 22% in 2018.

Operating Expenses

Operating expenses increased by $25,629 (1%)

in 2019 compared with 2018, increasing from $2,122,746 in 2018 to $2,148,375 in 2019.

The increase was mainly attributable to increases

in insurance expenses and employee fringe benefit expenses.

36% of the Company’s gross sales compared with 26% in 2019.

UNITED-GUARDIAN, INC.

Research and Development Expenses

Research and development expenses amounted to

$397,391 and $399,517 in 2019 and 2018, respectively.

The decrease of $2,126 (less than 1%) was primarily related to a decrease

in outside laboratory expenses.

The Company has been working more closely than it has in the past with ASI’s R&D department

to jointly develop and test new products, which has lowered the internal costs involved with the development of new products.

Operating Expenses

Operating expenses

decreased from $2,148,375 in 2019 to $2,026,368 in 2020.

The decrease was mainly attributable to decreases in payroll, payroll

related expenses, and employee fringe benefits.

The Company was able to reduce these expenses during 2020 due to a lower employee

The Company anticipates that operating expenses will remain relatively consistent for 2021.

Research and Development

Research and development

expenses increased from $397,391 in 2019 to $451,208 in 2020.

The increase was primarily related to an increase in payroll and

payroll related expenses and an increase in depreciation expense of R&D equipment.

Investment Income

Investment income decreased by $28,657 (12%)

from $231,986 in 2018 to $203,329 in 2019.

The decrease was due to a decrease in investment income from both stock and bond mutual

During 2019, the Company’s investment portfolio was more heavily weighted in U.S.

Treasury Bills which yielded interest

income that was less than the dividend income recognized in 2018 from the Company’s investment in stock and bond mutual funds.

Net Gain (Loss) on Marketable Securities

The net gain (loss) on marketable securities

changed to a gain of $431,076 in 2019 from a loss of $333,138 in 2018, a positive change of $764,214.The increase was primarily

due to the Company recognizing higher gains (both realized and unrealized) on its stock and bond mutual funds compared to the same

period in 2018.

Provision for Income Taxes

The provision for income taxes increased by

Investment income increased

from $203,329 in 2019 to $226,245 in 2020.

This increase was due to an increase in net income.

The Company’s

effective income tax rate was approximately 21% in 2019 and approximately 20% in 2018.

The Company’s effective income tax

rate in 2018 was lower than in 2019 due to higher research and development tax credits in 2018 compared with 2019.

The increase was due to an increase in dividend income from both stock and bond mutual

In early 2020, the Company began to shift its investment strategy from lower-yielding U.S.

Treasury Bills towards short

and intermediate-term bond funds that were yielding higher returns.

During 2019, the Company’s investment portfolio was more

heavily weighted in U.S.

Treasury Bills, which yielded interest income that was less than the dividend income recognized in 2020

from the Company’s stock and bond mutual funds.

Net Gain on Marketable

The net gain on marketable

securities decreased from $431,076 in 2019 to $298,585 in 2020.

The decrease was primarily due to the Company recognizing lower

unrealized gains on its stock and bond mutual funds compared with the same period in 2019.

Provision for

The provision for income

taxes decreased from $1,268,659 in 2019 to $856,022 in 2020.

This decrease was due to a decrease in income before taxes.

The Company’s

effective income tax rate was 20.6% in 2020 and 21.1% in 2019.

The Company’s effective income tax rate in 2020 was slightly

lower than in 2019 due to higher research and development tax credits in 2020 compared with 2019.

Liquidity and Capital Resources

Working capital decreased from $10,320,949 at

December 31, 2018 to $10,224,222 at December 31, 2019, a decrease of $96,727 (less than 1%).

The current ratio remained the same

at 8.6 to 1 at December 31, 2019 and December 31, 2018.

The decrease in working capital was mainly due to decreases in marketable

securities and inventories, partially offset by increases in accounts receivable and cash.

Accounts receivable (net of allowance for doubtful

accounts) as of December 31, 2019 increased by $425,844 (25%) from $1,672,567 in 2018 to $2,098,411 in 2019.

The receivables turnover,

or Days Sales Outstanding, for 2019 was 51 days, compared with 49 days in 2018.

The increase was mainly the result of some of the

Company’s larger customers implementing electronic payments and, as a result, the payment terms increased to allow for additional

processing time.

The Company’s allowance for doubtful accounts receivable increased from $16,895 in 2018 to $21,178 for 2019,

and the Company believes that the net balance of its accounts receivable is fully collectible as of December 31, 2019.

The Company generated cash from operations of

$4,476,111 in 2019 compared with $4,950,412 in 2018.

The decrease in 2019 was primarily due to an increase in accounts receivable

and the recognition of a gain on marketable securities in 2019 compared with a loss in 2018.

Net cash used in investing activities was $308,759

for the year ended December 31, 2018 compared with net cash provided by investing activities of $1,071,987 for the year ended December

This increase in net cash was mainly due to an increase in sales of marketable securities in 2019 compared with 2018.

Working capital decreased

from $10,224,222 at December 31, 2019 to $9,832,326 at December 31, 2020.

The current ratio decreased from 8.6 to 1 at December

31, 2019 to 8.0 to 1 at December 31, 2020.

The decrease in working capital was mainly due to decreases in cash and accounts receivable

and an increase in accrued expenses.

Accounts receivable

(net of allowance for doubtful accounts) as of December 31, 2020 decreased from $2,098,411 in 2019 to $1,387,698 in 2020.

in accounts receivable was due to the decrease in sales the Company experienced during 2020 due the coronavirus pandemic.

The receivables

turnover, or “Days Sales Outstanding”, for 2020 was 58 days, compared with 51 days in 2019.

The increase was mainly

the result of the Company experiencing minor delays in receiving payments from some customers during 2020 due to the pandemic.

The Company’s allowance for doubtful accounts receivable decreased from $21,178 in 2019 to $14,017 in 2020, and the Company

believes that the net balance of its accounts receivable as of December 31, 2020 was, and continues to be, fully collectible.

UNITED-GUARDIAN, INC.

Cash used in financing activities was $5,049,922

and $4,816,239 during the years ended December 31, 2019 and 2018, respectively.

The increase was due to the payment of higher dividends

in 2019 compared with 2018.

The Company believes that its working capital

is sufficient to support its operating requirements for the next fiscal year.

The Company's long-term liquidity position will be

dependent upon its ability to generate sufficient cash flow from profitable operations.

The Company has no material commitments

for future capital expenditures.

Off Balance-Sheet Arrangements

The Company has no off balance-sheet transactions

that have, or are reasonably likely to have, a current or future effect 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.

New Accounting Pronouncements

See Note "A" to the financial

statements regarding new accounting pronouncements, which note is incorporated herein by reference.

The Company generated

cash from operations of $3,594,240 in 2020 compared with $4,476,111 in 2019.

The decrease in 2020 was primarily due to a decrease

in net income in 2020 compared with 2019.

Net cash provided by

investing activities was $1,071,987 for the year ended December 31, 2019 compared with net cash used in investing activities of

$468,676 for the year ended December 31, 2020.

This decrease in net cash provided by investing activities was mainly due to the

execution of the Company’s strategy to purchase additional short and intermediate-term bond mutual funds in 2020.

Net cash used in financing

activities was $3,582,431 and $5,049,922 during the years ended December 31, 2020 and 2019, respectively.

The decrease was due

to the payment of lower dividends in 2020 compared with 2019.

The Company believes

that its working capital is sufficient to support its operating requirements for the next fiscal year.

The Company's long-term

liquidity position will be dependent upon its ability to generate sufficient cash flow from profitable operations.

The Company has no

material commitments for future capital expenditures and no material cash requirements of immediate concern.

The Company has no

off balance-sheet transactions that have, or are reasonably likely to have, a current or future effect on the Company’s financial

condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital

On March 27, 2020,

the coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

The CARES Act contains

a provision known as the Employee Retention Credit (“ERC”), a refundable payroll tax credit for qualified wages paid

to retained full-time employees between March 13, 2020 and December 31, 2020.

The Consolidations Appropriations Act (CAA), signed

into law on December 27, 2020, significantly modified and expanded the provisions of the ERC to include wages paid in the first

half of 2021.

The Company has determined that it has qualified for this credit in the first quarter of 2021 and anticipates utilizing

benefits under this act to aid its liquidity position.

For 2021, the ERC provides employers a refundable federal tax credit equal

to 70% of the first $10,000 of qualified wages and benefits paid to retained employees between January 1, 2021 and June 30, 2021.

Credits may be claimed immediately by reducing payroll taxes sent to the Internal Revenue Service.

To the extent that the credit

exceeds employment withholdings, the employer may request a refund of prior taxes paid.

New Accounting

Pronouncements

"A"

to the financial statements regarding new accounting pronouncements, which note is incorporated herein by reference.

Quantitative and Qualitative Disclosures about Market Risk.

The information to be reported under this item

is not required of smaller reporting companies.

The information to

be reported under this item is not required of smaller reporting companies.

Financial Statements and Supplementary Data.

Annexed hereto starting on page F-1.

Annexed hereto starting

UNITED-GUARDIAN, INC.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis