UNITED GUARDIAN INC 10-K

Item 9A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the design, operation, and effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of December 31, 2020. On the basis of that evaluation, management concluded that the Company’s disclosure controls and procedures are designed to be, and are, effective at providing reasonable assurance that the information required to be disclosed in reports filed or submitted pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management, including its Principal Executive Officer and Principal Financial Officer as appropriate, to allow timely decisions regarding required disclosure. (b) Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control system is designed to provide reasonable assurance to management and to the Company’s Board of Directors regarding the preparation and fair presentation of published financial statements. Under the supervision and with the participation of management, including the Company’s Principal Executive Officer and Principal Financial Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based on management’s evaluation under the framework in Internal Control—Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020. This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Since the Company is a non-accelerated filer, management’s report is not subject to attestation by the Company's registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002. As a result, this Annual Report contains only management’s report on internal controls. (c) Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting in the fourth quarter of 2020 that materially affected, or would be reasonably likely to materially affect, the Company’s internal control over financial reporting. (d) Limitations of the Effectiveness of Internal Controls The effectiveness of the Company’s system of disclosure controls and procedures and internal control over financial reporting is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the control system, the assumptions used in identifying the likelihood of future events, and the inability to eliminate fraud and misconduct completely. As a result, there can be no assurance that the Company’s disclosure controls and procedures and internal control over financial reporting will detect all errors or fraud. However, the Company’s control systems have been designed to provide reasonable assurance of achieving their objectives, and the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures and internal control over financial reporting are effective at the reasonable assurance level. 23 UNITED-GUARDIAN, INC. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item is incorporated by reference to the section entitled “Directors and Executive Officers” to be contained in the Company’s 2021 Proxy Statement. Code of Ethics The Company has adopted a Code of Business Conduct and Ethics that applies to all officers, directors, and employees serving in any capacity to the Company, including the Chief Executive Officer and/or President, Chief Financial Officer, and Principal Accounting Officer. A copy of the Company's Code of Business Conduct and Ethics is available on the Company's website at http://www.u-g.com/corporate. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of its Code of Business Conduct and Ethics applicable to the Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer by posting this information on the Company's website. Audit Committee The Company has an Audit Committee (“Committee”) that is currently composed of three of the Company’s independent directors, as well as an additional outside director that has expertise in both accounting and financial reporting, who acts as an advisor to the Committee. The members of the Committee are elected annually by the Board of Directors. The Committee was established for the purpose of assisting the Board of Directors in fulfilling its oversight responsibilities, including (a) overseeing the Company’s accounting and financial reporting processes, including preparation of financial statements and audits; (b) assuring the Company’s compliance with all legal, regulatory, and ethical responsibilities; (c) evaluating the qualifications and independence of the Company’s independent accountants; and (d) assessing the effectiveness of the Company’s internal controls and risk management procedures. The Committee currently meets five times a year, and is governed by a charter that was adopted in 2006 and updated in 2020. Item 11. Executive Compensation. The information required by this item is incorporated herein by reference to the section entitled "Compensation of Directors and Executive Officers" in the Company's 2021 Proxy Statement. 24 UNITED-GUARDIAN, INC. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated by reference to the section entitled "Voting Securities and Principal Stockholders" in the Company's 2021 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated by reference to the section entitled “Directors and Executive Officers" in the Company's 2021 Proxy Statement. Item 14. Principal Accounting Fees and Services. Audit Fees The aggregate fees that have been billed by Baker Tilly US, LLP (“Baker Tilly“), the Company’s principal accountants since March 25, 2019, for the quarterly reviews of the Company’s financial statements for the first, second and third quarters of 2019 and the audit of the Company’s financial statements for the 2019 fiscal year were $89,000. The aggregate fees that have been, or are expected to be, billed by Baker Tilly for the quarterly reviews of the Company’s financial statements for the first, second and third quarters of 2020 and the audit of the Company’s financial statements for the 2020 fiscal year are $89,500. During 2020, the Company paid Raich Ende Malter & Co (“Raich”) $5,000 in connection with the audit of the Company’s financial statements for the 2019 fiscal year. Audit-Related Fees During 2020, there were no fees paid to Baker Tilly in connection with the Company's compliance with Section 404 of the Sarbanes-Oxley Act of 2002. No other fees were billed by Baker Tilly for the last two fiscal years that were reasonably related to the performance of the audit or review of the Company's financial statements and not reported under "Audit Fees" above. Tax Fees There were no fees billed by Baker Tilly during the last two fiscal years for professional services rendered for tax compliance, tax advice, or tax planning. Accordingly, none of such services were approved pursuant to pre-approval procedures or permitted waivers thereof. All Other Fees There were no other non-audit-related fees billed to the Company by Baker Tilly in 2020 or 2019. 25 UNITED-GUARDIAN, INC. Pre-Approval Policies and Procedures Engagement of accounting services by the Company is not made pursuant to any pre-approval policies and procedures. Rather, the Company believes that its accounting firm is independent because all of its engagements by the Company are approved by the Company's Audit Committee prior to any such engagement. The Audit Committee meets periodically to review and approve the scope of the services to be provided to the Company by its Independent Registered Public Accounting Firm, as well as to review and discuss any issues that may arise during an engagement. The Committee is responsible for the prior approval of every engagement of the Company's Independent Registered Public Accounting Firm to perform audit and permissible non-audit services for the Company, such as quarterly financial reviews, tax matters, and consultation on new accounting and disclosure standards. Before the auditors are engaged to provide those services, the President and the Controller will make a recommendation to the Committee regarding each of the services to be performed, including the fees to be charged for such services. At the request of the Committee, the Independent Registered Public Accounting Firm and/or management shall periodically report to the Committee regarding the extent of services being provided by the Independent Registered Public Accounting Firm, and the fees for the services performed to date. Item 15. Exhibits, Financial Statement Schedules. (a) Documents filed as part of this report. (i) Financial Statements - see Item 8. Financial Statements and Supplementary Data. (ii) Financial Statement Schedules – None. (Financial statement schedules have been omitted either because they are not applicable, not required, or the information required to be set forth therein is included in the financial statements or notes thereto.) (iii) Report of Independent Registered Public Accounting Firm. (iv) Notes to Financial Statements. (b) Exhibits The exhibits listed on the accompanying Exhibit Index are filed as part of this Annual Report. Item 16. Form 10-K Summary. None. 26 UNITED-GUARDIAN, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED-GUARDIAN, INC. By: /s/ Ken Globus Ken Globus Date: March 18, 2021 President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date By: /s/ Ken Globus President (Principal Executive Officer); General Counsel; Chairman of the Board of Directors Ken Globus March 18, 2021 By: /s/ Andrea J. Young Chief Financial Officer (Controller, Principal Financial Officer, and Principal Accounting Officer); Treasurer; Secretary Andrea J. Young March 18, 2021 By: /s/ Lawrence F. Maietta Director; Advisor to the Audit Committee March 18, 2021 Lawrence F. Maietta By: /s/ Arthur M. Dresner Director; Chairman of the Audit Committee March 18, 2021 Arthur M. Dresner By: /s/ Andrew A. Boccone Director; Audit Committee member March 18, 2021 Andrew A. Boccone By: /s/ S. Ari Papoulias Director; Audit Committee member March 18, 2021 S. Ari Papoulias 27 UNITED-GUARDIAN, INC. EXHIBIT INDEX Exhibit # Description 2 P Certificate of Merger of United-Guardian, Inc. (New York) with and into United-Guardian, Inc. (Delaware) as filed with the Secretary of State of the State of Delaware on September 10, 1987. Incorporated by reference to Exhibit 3(b) of the Registrant's Annual Report on Form 10-K for the fiscal year ended February 29, 1988 (the "1988 10-K"). 3 (a) P Certificate of Incorporation of the Company as filed April 22, 1987. Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K, dated September 21, 1987 (the "1987 8-K"). 3 (b) P By-laws of the Company. Incorporated by reference to Exhibit 4.2 to the 1987 8-K. 4 (a) P Specimen Certificate for shares of Common Stock of the Company. Incorporated by reference to Exhibit 4(a) to the 1988 10-K. 10 (a) P Qualified Retirement Income Plan for Employees of the Company, as restated April 1, 1976. Incorporated by reference to Exhibit 11(c) of the Registrant's Registration Statement on Form S-1 (Registration No. 2-63114) declared effective February 9, 1979. 10 (b) Exclusive Distributor Agreement between the Company and ISP Technologies Inc., dated July 5, 2000. Incorporated by reference to Exhibit 10(d) of the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000. 10 (c) Letter Amendment between the Company and ISP Technologies Inc. dated December 16, 2002 amending the Exclusive Distributor Agreement between the Registrant and ISP Technologies Inc. dated July 5, 2000. Incorporated by reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002. 10 (d) Letter Amendment between the Company and ISP Technologies Inc. dated December 20, 2005 amending the Exclusive Distributor Agreement between the Registrant and ISP Technologies Inc. dated July 5, 2000 and amended on December 31, 2002. Incorporated by reference to Exhibit 10(d) of the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005. 10 (e) Letter Amendment between the Company and ISP Technologies Inc. dated May 5, 2010 amending the Exclusive Distributor Agreement between the Company and ISP Technologies Inc. dated July 5, 2000 and amended on December 16, 2002 and December 20, 2005. Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010. 10 (f) Manufacturing and Supply Agreement between the Company and Smiths Medical ASD, Inc. signed November 12, 2013 and effective as of November 1, 2013. Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K dated and filed November 18, 2013. 14 Code of Ethics and amendments thereto. Incorporated by reference to Exhibit 14 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 21 Subsidiaries of the Company: None 28 UNITED-GUARDIAN, INC. 31.1 Certification of Ken Globus, President and Principal Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Andrea J. Young, Principal Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certifications of Ken Globus, President and Principal Executive Officer of the Company, and Andrea J. Young, Principal Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. P: Indicates a paper filing 29 UNITED-GUARDIAN, INC. INDEX TO FINANCIAL STATEMENTS (For the years ended December 31, 2020 and 2019) Page Reports of Independent Registered Public Accounting Firm F-2 Financial Statements Statements of Income F-3 Balance Sheets F-4 & F-5 Statements of Stockholders' Equity F-6 Statements of Cash Flows F-7 Notes to Financial Statements F-8 - F-22 F- 1 UNITED-GUARDIAN, INC. 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, 2020 and 2019, 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, 2020 and 2019, 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. [Signature] Baker Tilly US, LLP (formerly known as Baker Tilly Virchow Krause, LLP) F- 2 UNITED-GUARDIAN, INC. STATEMENTS OF INCOME Years ended December 31, 2020 2019 Net sales $ 10,986,081 $ 13,599,084 Costs and expenses: Cost of sales 4,872,335 5,657,353 Operating expenses 2,026,368 2,148,375 Research and development 451,208 397,391 Total costs and expenses 7,349,911 8,203,119 Income from operations 3,636,170 5,395,965 Other income: Investment income 226,245 203,329 Net gain on marketable securities 298,585 431,076 Total other income 524,830 634,405 Income before provision for income taxes 4,161,000 6,030,370 Provision for income taxes 856,022 1,268,659 Net income $ 3,304,978 $ 4,761,711 Earnings per common share (basic and diluted) $ 0.72 $ 1.04 Weighted average shares (basic and diluted) 4,594,319 4,594,319 See Notes to Financial Statements F- 3 UNITED-GUARDIAN, INC. BALANCE SHEETS ASSETS December 31, 2020 2019 Current assets: Cash and cash equivalents $ 591,444 $ 1,048,311 Marketable securities 7,591,381 6,867,516 Accounts receivable, net of allowance for doubtful accounts of $14,017 in 2020 and $21,178 in 2019 1,387,698 2,098,411 Inventories (net) 1,415,773 1,217,277 Prepaid expenses and other current assets 161,208 170,466 Prepaid income taxes 99,107 165,300 Total current assets 11,246,611 11,567,281 Property, plant, and equipment: Land 69,000 69,000 Factory equipment and fixtures 4,516,335 4,482,236 Building and improvements 2,848,585 2,839,289 Total property, plant and equipment 7,433,920 7,390,525 Less accumulated depreciation 6,760,255 6,609,818 Total property, plant, and equipment, net 673,665 780,707 Other assets (net) --- 14,824 TOTAL ASSETS $ 11,920,276 $ 12,362,812 See Notes to Financial Statements F- 4 UNITED-GUARDIAN, INC. BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2020 2019 Current liabilities: Accounts payable $ 31,800 $ 71,385 Accrued expenses 1,363,457 1,129,126 Dividends payable 19,028 142,548 Total current liabilities 1,414,285 1,343,059 Deferred income taxes (net) 151,684 386,855 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, 2020 and 2019, respectively 459,432 459,432 Retained earnings 9,894,875 10,173,466 Total stockholders’ equity 10,354,307 10,632,898 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 11,920,276 $ 12,362,812 See Notes to Financial Statements F- 5 UNITED-GUARDIAN, INC. STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2020 and 2019 Common stock Shares Amount Retained earnings Total Balance, January 1, 2019 4,594,319 $ 459,432 $ 10,465,506 $ 10,924,938 Net income --- --- 4,761,711 4,761,711 Dividends declared, not paid ($1.10 per share) --- --- (3,829 ) (3,829 ) Dividends declared and paid ($1.10 per share) --- --- (5,049,922 ) (5,049,922 ) Balance, December 31, 2019 4,594,319 $ 459,432 $ 10,173,466 $ 10,632,898 Net income --- --- 3,304,978 3,304,978 Dividends declared, not paid ($0.78 per share) --- --- (1,138 ) (1,138 ) Dividends declared and paid ($0.78 per share) --- --- (3,582,431 ) (3,582,431 ) Balance, December 31, 2020 4,594,319 $ 459,432 $ 9,894,875 $ 10,354,307 See Notes to Financial Statements F- 6 UNITED-GUARDIAN, INC. STATEMENTS OF CASH FLOWS Years ended December 31, 2020 2019 Cash flows from operating activities: Net income $ 3,304,978 $ 4,761,711 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 165,261 175,810 Net gain on marketable securities (298,585 ) (431,076 ) Allowance for doubtful accounts (7,161 ) 4,283 Reserve for inventories --- 15,000 Deferred income taxes (235,171 ) 133,272 Decrease (increase) in operating assets: Accounts receivable 717,874 (430,127 ) Inventories (198,496 ) 249,874 Prepaid expenses and other current assets 9,258 (11,102 ) Prepaid income taxes 66,193 35,387 (Decrease) increase in operating liabilities: Accounts payable (39,585 ) (115,412 ) Accrued expenses 234,331 88,491 Dividends payable (124,657 ) --- Net cash provided by operating activities 3,594,240 4,476,111 Cash flows from investing activities: Acquisitions of property, plant and equipment (43,395 ) (113,769 ) Purchases of marketable securities (6,796,409 ) (14,779,161 ) Proceeds from sales of marketable securities 6,371,128 15,964,917 Net cash (used in) provided by investing activities (468,676 ) 1,071,987 Cash flows from financing activities: Dividends paid (3,582,431 ) (5,049,922 ) Net cash used in financing activities (3,582,431 ) (5,049,922 ) Net (decrease) increase in cash and cash equivalents (456,867 ) 498,176 Cash and cash equivalents, beginning of year 1,048,311 550,135 Cash and cash equivalents, end of year $ 591,444 $ 1,048,311 Supplemental disclosure of cash flow information Taxes paid $ 1,025,000 $ 1,100,000 Supplemental disclosure of non-cash dividends on unexchanged shares $ 1,138 $ 3,829 See Notes to Financial Statements F- 7 UNITED-GUARDIAN, INC. NOTES TO FINANCIAL STATEMENTS NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, 2020 and December 31, 2019, respectively. Lubrajel accounted for approximately 57% and 67% of the Company’s sales for the years ended December 31, 2020 and December 31, 2019, respectively, and Renacidin accounted for approximately 36% and 26% of the Company’s sales for the years ended December 31, 2020 and December 31, 2019, respectively. 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 the Company’s pharmaceutical sales have not been impacted by the coronavirus pandemic, sales of the Company’s cosmetic ingredients and medical products have been 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 Ashland Specialty Ingredients (“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 improve. 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 2021. F- 8 UNITED-GUARDIAN, INC. The Company also believes that the coronavirus impacted sales to two of the Company’s four 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 protection from large price fluctuations on its most important raw material, and has multiple sources for many of its other raw materials. Even with the impact of the coronavirus pandemic it has been able to maintain sufficient inventory and production levels to enable it to fulfill sales orders on a timely basis. The Company does not expect the carrying value of its assets or its liquidity to be impaired by the coronavirus pandemic. 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. 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 and sales returns. 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, 2020 and 2019, the allowance for doubtful accounts receivable amounted to $14,017 and $21,178, 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. F- 9 UNITED-GUARDIAN, INC. The Company’s sales, as reported, are subject to a variety of deductions, which 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 product. 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, the Company concluded 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 as of 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; or (c) the product is outdated (but not more than one year after their expiration date, which is a return policy which conforms to standard pharmaceutical industry practice). The Company estimates an allowance for outdated material returns based on 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. The timing between recognition of revenue for product sales and the receipt of payment is not significant. Due to the Covid-19 pandemic the Company experienced minor delays in receiving payments from certain customers that were impacted by the pandemic, but 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 taken. F- 10 UNITED-GUARDIAN, INC. 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 is as follows: Years ended December 31, 2020 2019 Cosmetic ingredients $ 4,274,586 $ 6,377,323 Pharmaceuticals 4,519,052 4,091,817 Medical products 2,052,961 2,968,806 Industrial and other 139,482 161,138 Total Net Sales $ 10,986,081 $ 13,599,084 The Company’s cosmetic ingredients are currently marketed worldwide by five marketing partners, of which United States (“U.S.”)-based ASI purchases the largest volume. During most of 2019 the Company also had a separate marketing partner for Korea, but at the end of 2019 that territory was transferred to ASI. For the years ended December 31, 2020 and 2019, approximately 20% and 18%, respectively, of the Company’s sales were to (a) its foreign-based marketing partners (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 products. Disaggregated sales by geographic region are as follows: Years ended December 31, 2020 2019 United States* $ 8,796,221 $ 11,118,629 Other countries 2,189,860 2,480,455 Net Sales $ 10,986,081 $ 13,599,084 * 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. F- 11 UNITED-GUARDIAN, INC. 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, 2020, approximately $653,000 exceeded the FDIC limit. Dividends On May 20, 2020, the Company’s Board of Directors declared a semi-annual cash dividend of $0.42 per share, which was paid on June 17, 2020 to all stockholders of record as of June 3, 2020. On November 18, 2020, the Company’s Board of Directors declared a semi-annual cash dividend of $0.36 per share which was paid on December 8, 2020, to all stockholders of record as of December 1, 2020. In 2020, the Company declared a total of $3,583,569 in dividends, of which $3,582,431 was paid. The balance of $1,138 is payable to stockholders whose old Guardian shares have not yet been exchanged to United-Guardian, Inc. shares and are pending escheatment. See Note H for further discussion. During the third quarter of 2020, the Company paid approximately $124,041 to its transfer agent, which represented accrued dividends on unconverted Guardian shares. This payment was made to facilitate the conversion of those shares to United-Guardian, Inc. shares, and the subsequent escheatment of those shares to the appropriate state jurisdictions. The Company is continuing to accrue dividends on the remaining unconverted shares that are currently pending escheatment. On May 15, 2019, the Company’s Board of Directors declared a semi-annual cash dividend of $0.55 per share, which was paid on June 14, 2019 to all stockholders of record as of May 31, 2019. On November 20, 2019, the Company’s Board of Directors declared a semi-annual cash dividend of $0.55 per share which was paid on December 10, 2019, to all stockholders of record as of December 3, 2019. In 2019, the Company declared a total of $5,053,751 in dividends, of which $5,049,922 was paid. The balance of $3,829 was payable to stockholders whose Guardian shares have not been exchanged to United-Guardian, Inc. shares and are pending escheatment. See Note H for further discussion. Marketable Securities 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 realized gains or losses, if any, 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 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 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. F- 12 UNITED-GUARDIAN, INC. 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 (years) 5 - 7 Building (years) 40 Building improvements Lesser of useful life or 20 years Impairment of Long-Lived Assets Long-lived assets and certain identifiable intangibles 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, 2020 and 2019. Other Assets (net) Other assets at December 31, 2020 and 2019 represents an amount expended in connection with the development of the current single-dose form of Renacidin. The Company began amortizing these costs in the first quarter of 2016. At December 31, 2020 and 2019, accumulated amortization for such assets amounted to $74,120 and $59,296, respectively. 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. F- 13 UNITED-GUARDIAN, INC. For the year ended December 31, 2020, four of the Company’s distributors and marketing partners accounted for approximately 72% of the Company’s gross sales during the year and approximately 67% of its outstanding accounts receivable at December 31, 2020. For the year ended December 31, 2019, the same four distributors and marketing partners accounted for a total of approximately 70% of the Company’s gross sales during the year and 70% of its outstanding accounts receivable at December 31, 2019. 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. The Company did not experience any issues obtaining raw materials from its main suppliers during the COVID-19 pandemic. The Company has six major raw material vendors that collectively accounted for approximately 88% and 84% of the raw material purchases by the Company in 2020 and 2019, 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, 2020 and 2019, 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, 2020 and 2019, the Company did not record any tax-related interest or penalties. The Company’s tax returns for 2017 and all subsequent years are subject to examination by the United States Internal Revenue Service and by the State of New York. On December 18, 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”, which modifies ASC 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating whether any of the modifications included in this pronouncement will impact its financial statements. F- 14 UNITED-GUARDIAN, INC. 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. 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 $81,000 and $76,000 for the years ended December 31, 2020 and 2019, respectively. Advertising Expenses Advertising costs are expensed as incurred. For the years ended December 31, 2020 and 2019, the Company incurred approximately $27,000 and $28,000, 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 January 2019, the Company adopted ASU 2016-02, “Leases”, which was intended to improve financial reporting for lease transactions. This ASU requires organizations that lease assets, such as real estate and manufacturing equipment, to recognize both assets and liabilities on their balance sheet for the rights to use those assets for the lease term and obligations to make the lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. This ASU requires disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The adoption of this standard did not have a material impact on the Company’s financial statements. On December 18, 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which modifies ASU 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating if any of these modifications will have an impact on its financial statements. 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 is currently evaluating if this pronouncement will have a potential impact on its financial statements. F- 15 UNITED-GUARDIAN, INC. NOTE B - MARKETABLE SECURITIES Marketable securities include investments in fixed income and equity mutual funds and U.S. Government securities with maturities greater than 3 months, which are reported at their fair values. The Company’s U.S. Treasury Bills are considered debt securities and unrealized gains and losses, if any, are reported in other comprehensive income. The U.S. Treasury Bills are considered held to maturity securities, as they are purchased directly from the U.S. Government and are unable to be sold before the maturity date. The disaggregated net gains and losses on the marketable securities recognized in the income statement for the years ended December 31, 2020 and 2019 are as follows: Years ended December 31, 2020 2019 Net gains recognized during the year on marketable securities $ 298,585 $ 431,076 Less: Net gains recognized during the year on marketable securities sold during the period (415,595 ) (262,399 ) Unrealized (losses) gains recognized during the reporting year on marketable securities still held at the reporting date $ (117,010 ) $ 168,677 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: F- 16 UNITED-GUARDIAN, INC. December 31, 2020 Equity Securities Cost Fair Value Unrealized Gain Fixed income mutual funds $ 6,703,107 $ 6,907,270 $ 204,163 Equity and other mutual funds 584,044 684,111 100,067 Total equity securities 7,287,151 7,591,381 304,230 Total marketable securities $ 7,287,151 $ 7,591,381 $ 304,230 December 31, 2019 Debt Securities U.S Treasury Bills (maturities of greater than three months up to one year) $ 3,481,625 $ 3,481,625 $ --- Total debt securities 3,481,625 3,481,625 --- Equity Securities Fixed income mutual funds $ 1,940,071 $ 2,122,157 $ 182,086 Equity and other mutual funds 1,024,580 1,263,734 239,154 Total equity securities 2,964,651 3,385,891 421,240 Total marketable securities $ 6,446,276 $ 6,867,516 $ 421,240 Investment income is recognized when earned and consists principally of interest income from fixed income mutual funds and U.S. Treasury Bills and dividend income from equity and other mutual funds. 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 $6,371,128 for the year ended December 31, 2020, which included realized gains of $415,595. Proceeds from the sale and redemption of marketable securities for the year ended December 31, 2019 amounted to $15,964,917, which included realized gains of $262,399. NOTE C – INVENTORIES Inventories consist of the following: December 31, 2020 2019 Raw materials $ 415,415 $ 320,507 Work in process 59,258 81,002 Finished products 941,100 815,768 Total Inventories $ 1,415,773 $ 1,217,277 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, 2020 and December 31, 2019 are net of a reserve of $35,000. At December 31, 2020 and 2019, the Company had an allowance of $302,715 and $231,392 respectively, for possible outdated material returns, which is included in accrued expenses. As of the date of this report, the COVID-19 pandemic has not adversely affected the valuation of the Company’s finished products, work in process or raw material inventories. F- 17 UNITED-GUARDIAN, INC. NOTE D – INCOME TAXES The provision for income taxes consists of the following: Years ended December 31, Current 2020 2019 Federal $ 1,091,148 $ 1,135,209 State 45 178 Total current provision for income taxes 1,091,193 1,135,387 Deferred Federal (235,171 ) 133,272 State --- --- Total deferred (benefit from) provision for income taxes (235,171 ) 133,272 Total provision for income taxes $ 856,022 $ 1,268,659 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): Years ended December 31, 2020 2019 ($) Tax rate ($) Tax rate Income taxes at statutory federal income tax rate $ 874,000 21.0 % $ 1,266,000 21.0 % Nondeductible expenses --- --- 1,000 --- Research & development credits (10,000 ) (0.2 ) (8,000 ) (0.1 ) Non-taxable dividends (3,000 ) (0.1 ) (2,000 ) --- Other, net (5,000 ) (0.1 ) 12,000 0.2 Provision for income taxes $ 856,000 20.6 % $ 1,269,000 21.1 % The tax effects of temporary differences which comprise the deferred tax assets and liabilities are as follows: December 31, 2020 2019 Deferred tax assets Allowance for doubtful accounts $ 2,944 $ 4,447 Inventories 7,350 7,350 Accounts payable 6,678 14,991 Accrued expenses 284,145 235,633 Total deferred tax assets 301,117 262,421 Deferred tax liabilities Accounts receivable (294,360 ) (445,113 ) Prepaid expenses (33,829 ) (42,319 ) Depreciation on property, plant and equipment (60,724 ) (73,384 ) Unrealized gain on marketable securities (63,888 ) (88,460 ) Total deferred tax liabilities (452,801 ) (649,276 ) Net deferred tax liability $ (151,684 ) $ (386,855 ) F- 18 UNITED-GUARDIAN, INC. NOTE E - 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 after one year of employment. Company 401(k) matching contributions were approximately $83,000 and $88,000 for the years ended December 31, 2020 and 2019, 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, 2020 and 2019, the Company’s Board of Directors authorized discretionary contributions in the amount of $130,000 and $145,000, respectively, 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 the employee becomes fully vested after six years of employment. NOTE F - GEOGRAPHIC and OTHER INFORMATION Through its Guardian Laboratories division the Company manufactures and markets cosmetic ingredients, pharmaceuticals, medical lubricants, and specialty industrial products. It also conducts research and development, primarily related to the development of new and unique cosmetic ingredients. 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 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 products, and industrial products. Each product category is marketed differently. The cosmetic ingredients are marketed through a global network of marketing partners and distributors. These marketing partners 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, 2021. The Company’s other marketing partners 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. F- 19 UNITED-GUARDIAN, INC. 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 are two urological products 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 efforts for these products are currently centered around the corporate website, a separate website developed specifically for Renacidin, its most important drug product, and internet marketing using Google ads. 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 being marketed under an NDA that was approved by the FDA in 1990. The medical products are not pharmaceutical products. They consist primarily of medical lubricants, 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 these products. Approvals are the responsibility of the company that markets the products in which the Company’s products are used, such as medical devices. However, the Company is responsible for manufacturing these products in accordance with current Good Manufacturing Practices for medical devices. 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 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 “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 products 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 “United States” revenue number in the table below. (a) Net Sales Years ended December 31, 2020 2019 Cosmetic Ingredients $ 4,283,052 $ 6,383,224 Pharmaceuticals 5,959,705 5,238,226 Medical Products 2,054,093 2,971,243 Industrial and other 139,482 161,138 Gross Sales 12,436,332 14,753,831 Less: Discounts and allowances (1,450,251 ) (1,154,747 ) Net Sales $ 10,986,081 $ 13,599.084 F- 20 UNITED-GUARDIAN, INC. (b) Geographic Information Years ended December 31, . 2020 2019 United States $ 8,796,221 $ 11,118,629 Other countries 2,189,860 2,480,455 Net Sales $ 10,986,081 $ 13,599,084 (c) Gross Sales to Major Customers Years ended December 31, 2020 2019 Customer A $ 3,236,113 $ 5,349,381 Customer B 2,796,310 2,390,911 Customer C 1,485,288 1,333,891 Customer D 1,434,097 1,256,640 All other customers 3,484,524 4,423,008 Total Gross Sales $ 12,436,332 $ 14,753,831 NOTE G - ACCRUED EXPENSES Accrued expenses at December 31, 2020 and 2019 consist of: 2020 2019 Bonuses $ 210,000 $ 216,000 Distribution fees 325,792 309,190 Payroll and related expenses 245,521 175,433 Annual report expenses 63,432 64,324 Audit fee 50,500 48,500 Reserve for outdated material 302,713 231,392 Sales rebates 149,346 46,100 Other 16,153 38,187 Total accrued expenses $ 1,363,457 $ 1,129,126 NOTE H - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES Cash payments for income taxes were $1,025,000 and $1,100,000 for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the Company had a number of unconverted Guardian shares that would convert to approximately 1,369 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 1,369 shares that have not yet been exchanged or designated for escheatment as of December 31, 2020, and the Company will continue to do so as dividends are declared. During the third quarter of 2020, the Company paid approximately $124,041 to its transfer agent, which represented accrued dividends on unconverted Guardian shares. This payment was made to facilitate the conversion of those shares to United-Guardian, Inc. shares, and the subsequent escheatment of those shares to the appropriate state jurisdictions. F- 21 UNITED-GUARDIAN, INC. NOTE I - RELATED PARTY TRANSACTIONS During each of the years ended December 31, 2020 and 2019, the Company paid Bonamassa, Maietta, and Cartelli, LLP, $16,250 and $17,500, respectively, for accounting and tax services. Lawrence Maietta, a partner in Bonamassa, Maietta, and Cartelli, LLP (newly part of PKF O’ Connor Davies), is a director of the Company. NOTE J – SUBSEQUENT EVENTS 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. F-22