UNITED GUARDIAN INC 10-K

Item 1. Business.   (a) Introduction        United-Guardian, Inc. ("United", "Registrant", or “Company”) is a Delaware corporation that, through its Guardian Laboratories division, conducts research, product development, manufacturing and marketing of cosmetic ingredients, pharmaceuticals, medical products, and proprietary specialty industrial products. The Company’s research and development department modifies, refines, and expands the uses of existing products for additional uses and markets. It also develops new products using natural and environmentally friendly raw materials, which is important to many of the Company’s cosmetic customers.   United's predecessor, United International Research, Inc. ("UIR"), was founded and incorporated in New York in 1942 by Dr. Alfred R. Globus, United's Chairman and Director of Research until his death on April 9, 2009. On February 10, 1982, a merger took place between UIR and Guardian Chemical Corporation ("Guardian"), an affiliate of UIR, whereby Guardian was merged into UIR and the name was changed to United-Guardian, Inc., a New York corporation. On September 14, 1987, United-Guardian, Inc. (New York) was merged with and into a newly formed Delaware corporation by the same name, United-Guardian, Inc., for the purpose of changing the domicile of the Company to Delaware.   The Company has a broad range of products, many of which are currently marketed and some of which are still in the research and development stage. Of the products being actively marketed, the two largest product lines are the Lubrajel® line of cosmetic ingredients and medical lubricants, which accounted for 60% of the Company's gross sales in 2021, and Renacidin® Irrigation Solution (“Renacidin"), a pharmaceutical product that accounted for 34% of the Company's gross sales in 2021.     1   UNITED-GUARDIAN, INC.   Unless indicated otherwise, all references in this Annual Report to “sales” or “Sales” shall mean net sales. When changes are shown as percentages, the number is approximate and has been rounded from one decimal place to the nearest whole number.   (b) Description of Business   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 focuses on the development of products that fill unmet market needs, have unique properties, and use proprietary technology that the Company typically protects as trade secrets rather than with patents. Many of the Company's products are marketed through collaborative agreements with larger companies.   The cosmetic ingredients manufactured by the Company are marketed to end users through the Company's worldwide network of marketing partners and distributors and are currently used by many of the major manufacturers of cosmetic products. The Company ships its cosmetic ingredients to its marketing partners Ex Works (EXW) from its facility in Hauppauge, New York. Those marketing partners in turn resell those products to their customers, who are typically the manufacturers and marketers of cosmetic and personal care products, and who in turn utilize the Company’s products in their finished products. The cosmetic ingredients are not sold on a consignment basis, so unless a product is determined to be defective, it is not returnable, except at the discretion of the Company.   The Company’s pharmaceutical products are sold primarily to several full-line drug wholesalers which in turn supply those products to pharmacies, physicians, and hospitals. The Company arranges for, and covers the cost of, shipping its pharmaceutical products, and sales of those products are final when shipped. They are returnable only under specific circumstances in accordance with pharmaceutical industry standards, such as if the products are (a) damaged when received; (b) defective; (c) too close to their expiration dates to sell; or (d) within a year after their expiration dates.   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 Company’s cosmetic ingredients are currently marketed globally by five marketing partners, of which Ashland Specialty Ingredients (“ASI”), a business segment of Ashland, Inc., is the largest. ASI manufactures and markets globally an extensive line of personal care and pharmaceutical additives and various other specialty products. The Company’s cosmetic ingredients are sold directly to those marketing partners, which in turn resell those products to their customers for use in the formulation of one or more of the customers’ personal care and cosmetic products. The Company’s non-pharmaceutical medical products (referred to hereinafter as the Company’s “medical products”) and its specialty industrial products are sold directly by the Company to marketers of finished products or to the contract manufacturers utilized by those marketers. The Company’s marketing efforts for its pharmaceutical products are accomplished primarily through its dedicated Renacidin website and by internet advertising. The pharmaceutical products are sold to hospitals and pharmacies primarily through full-line drug wholesalers, which purchase the Company’s products outright for resale to their customers. The Company also sells a small quantity of pharmaceutical products directly to hospitals and pharmacies. The Company's products are sold under trademarks or trade names owned by the Company, some of which are registered with the United States Patent and Trademark Office as well as with comparable regulatory agencies in some foreign countries. The Company has a corporate website at www.u-g.com, and a specific website for Renacidin at www.renacidin.com.   2   UNITED-GUARDIAN, INC.   IMPACT OF THE CORONAVIRUS PANDEMIC   While the coronavirus pandemic (“pandemic”) continues to impact certain areas of the Company’s operations, the substantial impact the pandemic had on Company sales in 2020 significantly lessened during 2021. While the Company believes that sales of its cosmetic ingredients are still being negatively impacted, the sales situation has improved substantially, and the current impact is coming more from increased shipping costs and higher raw material costs, which may have some future impact on the Company’s profit margins in upcoming quarters. During 2021 it was more difficult to ship the Company’s products due to a shortage of truck drivers and trucks, and limited availability of shipping vessels. This created some delays in having orders picked up, even though the Company’s products were available to ship. The shortage of truck drivers and shipping vessels is expected to continue into 2022 but improve as the year progresses. The Company has been able to minimize the impact on customers by making them aware of longer lead times that may be necessary as a result of these issues.   Sales of the Company’s non-pharmaceutical medical products (“medical products”) had also been negatively impacted by the pandemic in 2020, but those impacts lessened as well in 2021. Sales of the Company’s pharmaceutical products were not impacted by the pandemic in 2020 or in 2021.   The pandemic has not significantly affected the ability of the Company to obtain raw materials, but it has made some of those materials more expensive and created longer lead times for some of them. The increased costs of some of these raw materials may impact the Company’s gross profit margins in the future on certain products. The Company has been able to maintain production throughout the pandemic.   As a result of the lingering effects of the coronavirus pandemic as described above, there continues to be uncertainty in regard to the future potential impact of the pandemic on the Company’s operations or financial results. While the impact on the Company’s’ sales lessened considerably in 2021, the Company believes that it is still unable to provide an accurate estimate or projection as to what the future impact of the pandemic will be on the Company’s future operations or financial results. The Company does not expect the carrying value of its assets or its liquidity to be impaired by the coronavirus pandemic.   PRODUCTS   As stated above, the Company operates in one business segment, and its product lines are separated into four distinct product categories:   COSMETIC INGREDIENTS   LUBRAJEL ® is an extensive line of water-based moisturizing and lubricating gel formulations that are used as ingredients in personal care products (primarily cosmetic/skincare). In the personal care industry they are used primarily as moisturizers, viscosity modifiers, and as bases for other personal care products, and can be found as an ingredient in skin creams, moisturizers, makeup, and body lotions. Included in the many different formulations of Lubrajel are variations that use different types of preservatives, including the Company’s line of paraben-free products, as well as some, like Lubrajel PF , Lubrajel Oil PF , and Lubrajel II XD PF , which are all preservative-free.   LUBRAJEL NATURAL was the first product in a line of Lubrajel products for cosmetic use that are produced using only ingredients that are considered “natural”. This product, as well as the additional “natural” products under development (see “Development Activities” below) are based on natural polysaccharides, which contribute moisturization, emulsion stabilization, and emolliency to personal care products, particularly creams and lotions. Ecocert, one of the global organizations authorized to certify natural and organic products, has certified that Lubrajel Natural complies with the Cosmetic Organic and Natural Standard (“COSMOS”), indicating that the product is suitable for use in natural and organic cosmetic products.   3   UNITED-GUARDIAN, INC.   LUBRAJEL MARINE ™ was the second product that the Company developed for its new line of “natural” cosmetic ingredients. It was formulated using naturally-derived polysaccharides, with some of the ingredients sourced from marine vegetation. This product was developed jointly with ASI, and for that reason is being marketed globally on an exclusive basis by ASI. Like the original Lubrajel Natural, this product has received COSMOS certification for use in natural and organic cosmetic products. It is being actively marketed by ASI, and while sales have not attained the levels that the Company had originally hoped for, the Company is still optimistic that sales will increase as the interest in natural products in the marketplace continues.   Total sales of the Company's cosmetic ingredients increased by $2,598,128 (61%) for the year ended December 31, 2021 when compared with 2020, and accounted for approximately 49% of total Company sales in 2021 compared with 39% in 2020. The increase was due primarily to an increase in sales of Lubrajel cosmetic ingredients to ASI, which the Company believes was due mainly due to the global economies gradually recovering from the impact of the coronavirus pandemic during 2021.   Each of the following cosmetic ingredients accounted for less than 2% of the Company’s sales in 2021, listed in descending order of sales.   LUBRAJEL II XD is a version of Lubrajel that was developed to be a direct replacement for one of the competitive products to Lubrajel. There is a paraben-free version of this product known as Lubrajel II XD Free, and the Company recently completed the development of a preservative-free version of this product, which is being marketed as LUBRAJEL II XD PF.   LUBRASIL ™ II SB is a special formulation of Lubrajel in which silicone oil is incorporated into a Lubrajel base using proprietary technology that enables the product to maintain much of the clarity of regular Lubrajel. The product has a silky feel and is water resistant while at the same time providing moisturization.   B-122 ™ is a powdered lubricant used in the manufacture of certain cosmetics, such as pressed powders, eyeliners, and rouges, as well as some industrial products. The product acts as a binder, increases water-repellency and drop strength, and lowers the coefficient of friction in the products in which they are used.   KLENSOFT ™ is a surfactant (a surface-active agent, such as a soap or detergent) that can be used in shampoos, shower gels, makeup removers, and other cosmetic formulations. The marketing of Klensoft had been discontinued in 2021 due to a significant increase in raw material costs which made the product difficult to market. However, there has been recent interest in this product from a previous customer, despite the higher costs, and the Company may make limited quantities of this product available in the future depending on demand.   ORCHID COMPLEX ™ is an oil-soluble base for skin creams, lotions, cleansers, and other cosmetics. It is an extract of fresh orchids modified by stabilizers, and is characterized by its excellent lubricity, spreadability, light feel, and emolliency. Because of its alcohol solubility it may also be used in fragrance products, such as perfumes and toiletries. Its emolliency makes it an excellent additive to shampoos, bath products and facial cleansers. It is also a superior emollient for sunscreens, vitamin creams, toners and skin serums.   The Company believes that its ability to maintain and/or increase sales of its cosmetic ingredients will depend on (a) the ability and determination of its marketing partners, especially its largest marketing partner, ASI, to continue to aggressively promote the Company’s products, particularly to new customers, and to find new marketing opportunities for those products; (b) the Company's success in developing new and innovative cosmetic ingredients, including new types of water-based moisturizers and lubricants; developing new applications for existing products; and (c) the ability of the Company to compete with manufacturers of lower-cost competitors to Lubrajel that have negatively impacted the sales of the Company’s cosmetic ingredients over the past few years. In particular, the Company has experienced significant pricing pressure from competitive products being marketed by some Asian manufacturers. These lower-cost competitive products are likely to continue to negatively impact the Company’s sales and profit margins on some of its products in certain geographic areas.   4   UNITED-GUARDIAN, INC.   The Company believes that there is still potential to expand the sales of its cosmetic ingredients through new product development, modifications to make some of its current products more competitive, additional claim substantiation, and geographic expansion. The Company believes that its strong brand identity, reliability, and reputation for supplying quality products will be advantageous in its efforts to compete with the growing number of lower-cost competitors, but that it will still be necessary to be more competitive with its product pricing in certain geographic areas in order to maintain and grow its market share.   MEDICAL LUBRICANTS   LUBRAJEL RR and RC are both water-based gels used primarily as lubricants for urinary catheters. They are special grades of Lubrajel that can withstand sterilization by gamma radiation, which is one of the methods of terminally sterilizing medical and hospital products. Lubrajel RR was the original radiation resistant Lubrajel product. Lubrajel RC was developed as a lower-cost alternative to Lubrajel RR for those customers who are in more cost-sensitive markets. Sales of Lubrajel RR and Lubrajel RC decreased in 2021 compared with 2020, mostly due to a 90% decrease in sales of Lubrajel RC. The Company believes that the decrease was primarily the result of the loss of one of the Company’s larger medical product customers due to a reformulation. The combined sales of both products accounted for 4% of the Company’s sales in 2021. The Company is currently working with two companies that are evaluating this product, which may result in an increase in sales if one or both of those customers decide to proceed with purchasing this product.   LUBRAJEL MG is the original form of Lubrajel, developed as a medical lubricant in the 1970s. It is used by many medical device manufacturers for lubricating urinary catheters, pre-lubricated enema tips, and other medical devices. Sales for this product increased in 2021 compared with 2020 due to an increase in sales to one of the Company’s larger customers for this product located in China. Sales to this customer were impacted significantly in 2020 due to the pandemic, but sales levels increased as China’s economy began to emerge from the pandemic in 2021.   LUBRAJEL LC and LUBRAJEL FA are Lubrajel formulations that were developed for use in oral care applications. Sales of these products increased in 2021 compared with 2020, primarily due to an increase in orders from the Company’s primary customers for these products, which the Company believes was due to improving conditions related to the pandemic.   LUBRAJEL FLUID is a very low viscosity form of Lubrajel that was developed to provide superior lubrication in water-soluble products. It was specifically developed, and is currently in limited use, as a replacement for silicone oils in pre-lubricated condoms. The Company has only one customer for this product, and sales of this product did not contribute significantly to the Company’s overall sales.   Sales of all the medical grades of Lubrajel decreased by 5% in 2021 compared with 2020 and accounted for approximately 14% of the Company’s gross sales in 2021 compared with approximately 19% in 2020. The decrease was due primarily to the loss one customer.     5   UNITED-GUARDIAN, INC.   PHARMACEUTICALS   RENACIDIN ® is a prescription drug product that is used primarily to prevent and to dissolve calcifications in urethral catheters and in the urinary bladder. It is currently marketed in a plastic 30 mL single-dose bottle. While the gross profit generated by Renacidin increased in 2021 compared with 2020, gross sales of Renacidin decreased by approximately 6% in 2021 compared with 2020, and represented approximately 34% of total Company gross sales. The decrease in gross sales was due to the Company’s decision in December 2020 to terminate its participation in the Medicaid Drug Rebate Program (MDRP) and the Section 340(B) Pricing Program (340B). The Medicaid Drug Rebate Program required the Company to pay a significant rebate to the various states where Renacidin was provided to Medicaid patients, and the 340B program required the Company to sell their product at a deeply discounted price. Due to the overly burdensome nature of the Medicaid rebates and the deeply discounted pricing associated with the 340B Program, the Company terminated its participation in the MDRP and the 340B Programs, effective December 31, 2020.   CLORPACTIN ® WCS-90 is an antimicrobial product used primarily in urology to treat infections in the urinary bladder. It is also used in surgery for treating a wide range of localized infections in the peritoneum (the lining of the abdominal cavity), as well as the eye, ear, nose and throat, and sinuses. The product is a powder that is mixed with water by the end user and used as a solution. It is also a powerful disinfectant, fungicide, and deodorizer. In 2021 sales of Clorpactin increased by 16% and represented approximately 5% of the Company’s gross sales.   Sales of the Company’s pharmaceutical products are final when shipped, and are returnable only at the discretion of the Company unless (a) they are found to be defective; (b) the product is damaged in shipping; (c) the product is too close to its expiration date to sell; or (d) the product is past its expiration date by no more than one year. These return policies are in conformance with standard pharmaceutical industry practice.   INDUSTRIAL PRODUCTS   DESELEX ™ is a sequestering and chelating agent that is used primarily as a replacement for phosphates in the manufacture of detergents. It also has some use in personal care products as a chelating agent in shampoos and body washes. Sales of this product decreased by less than 1% in 2021 compared to 2020 and represented less than 1% of Company sales. In March 2022 the Company discontinued this product due to minimal sales and a significant increase in raw material costs.   THOROCLENS is a chlorine-based industrial cleanser manufactured and packaged by the Company for a small company in New England. Sales of this product increased in 2021, but, as with Deselex, represented less than 1% of Company sales.   DEVELOPMENT ACTIVITIES   In coordination with, and with input from, its marketing partners, the Company's research and development department develops products that are used in many different industries, including the personal care (including cosmetic), pharmaceutical, medical, health care, and specialty chemical industries. These products are in various stages of development, some currently marketable and some in the very early stages of development requiring a substantial amount of development work to bring them to market. Research is also being done on new uses for currently marketed products.   Prior to initiating research and development work on a product, the Company consults with its global marketing partners to determine the marketability of the product, including the potential market size and the most effective method of marketing the product. After that, the research and development department will determine whether the product can be successfully developed, including (a) laboratory refinements and adjustments to suit the intended uses of the product; (b) stability studies to determine the effective shelf life of the product and suitable storage and transportation conditions; and (c) laboratory efficacy tests to determine the effectiveness of the product under different conditions. If development proves feasible, the Company will then determine whether production and sales costs make it feasible to bring the product to market.   6   UNITED-GUARDIAN, INC.   If the initial development work is successful, and the estimated costs of further development are acceptable to the Company, further development work to bring the product to market will continue, including scaling up from laboratory production batches to pilot batches to full-scale production batches. In the case of drug products or medical devices, significant additional work would have to be done, including studies to determine safety and effectiveness, preparation of an Investigational New Drug (IND) Application, and finally the filing of an NDA. Because of the high cost of bringing new drugs or medical devices to market, as well as the Company’s limited resources, the Company does not currently have plans to develop any new drugs or medical devices, and intends to focus its research and development efforts on the development of new and innovative products for the personal care and medical (non-drug) markets.   While there can be no assurance that any particular project will result in a new marketable product or a commercially successful product, the Company believes that a number of its development projects, including those discussed below, may have commercial potential if the Company's development efforts are successful.   The Company's major research focus is on the development of new and unique cosmetic ingredients. The following are some of the projects on which the Company is currently working:   LUBRAJEL OIL PF: This product was developed as a result of the high demand for the Company’s very popular Lubrajel Oil. Unlike that product, this formulation is preservative-free, which enables formulators to use their own preservative systems without having to account for preservatives already incorporated into the product. This approach has been very successful with the Company’s Lubrajel PF, its first preservative-free product, and the Company is hopeful that a preservative-free formulation of Lubrajel Oil will also be successful. The Company has launched this product exclusively with Ashland, which launched the product globally at the end of 2020. Since the launch, Lubrajel Oil PF has seen success with many customers. The Company has seen increased orders which demonstrates how quickly customers have been able to incorporate Lubrajel Oil PF into their formulations.   LUBRAJEL II XD PF: Like Lubrajel Oil PF, this product was developed to meet the continuing market demand for preservative-free products. Current formulators are moving from conventional preservative systems to more natural methods of preservation. Eliminating the preservatives enables a formulator to choose the preservative system that is best for their final application. This product was launched by ASI in early 2021, and has already been qualified by some customers in the EMEA market. The Company received its first commercial order for this product in the first quarter of 2022.   OIL/WAX HYDRATION:   The concept for this product is an anhydrous textured gel that can be added to rinse-off formulas and provide longer-lasting hydration. Like many of the Company’s other “natural” products, this product has a high natural origin content based on ISO 16128, and, like the Company’s other natural products, is intended to be certified as a “natural” ingredient. Several prototype formulas have been created and additional testing will be conducted in the coming months. Additional conversations with Ashland are scheduled to better understand the market applications, pricing, and additional testing that may be necessary to prove efficacy.   LUBRAJEL 24:   The purpose of this project is to develop a “natural” product with 24-hour hydration. While the Company’s current water-based moisturizing products provide excellent hydration, the goal is to build upon that to produce a product with superior hydration that will last a full 24 hours. Three prototypes have been developed, and hydration testing has been conducted on two of the three, evaluating them against a well-known benchmark, hyaluronic acid. Testing of the remaining prototype will be conducted this winter to determine which formulations will move forward and what the next steps will be in the development process.   7   UNITED-GUARDIAN, INC.   LUBRAJEL OIL NATURAL:  This product was developed to be an addition to the Company’s “natural” line of products. It uses vegetable feedstock and is based on polysaccharide chemistry. Modifications have been made over the past year to increase hydration and stabilize the emulsion. Like the Company’s other “natural” products, this product has been certified by Ecocert to comply with the COSMOS standards for use in natural and organic cosmetic products. The Company has initially launched this product with its marketing partner in the United Kingdom (“UK”) due to a specific interest they had in this product. The product has already been qualified for use by some customers in the UK, and the first commercial order was placed in January 2021. The Company is working with its Italian marketing partner to pursue additional markets where this product might be successful.   LUBRAJEL TERRA : This product was developed as an additional offering to the Company’s line of “natural” products. Lubrajel Terra incorporates plant polysaccharides with natural moisturizers to achieve long-lasting hydration. Like the Company’s other “natural” products, this product has been certified by Ecocert to comply with the COSMOS standards for use in natural cosmetic products. The Company launched this product with its UK marketing partner in August 2021, and has seen interest in this product for use in haircare formulations following the beard-care formulation that was promoted as part of its launch. The Company’s UK marketing partner has informed the Company that several customers have included Lubrajel Terra in their pipeline evaluations. The Company is also working with its Italian marketing partner to pursue additional markets where this product might be successful.   HAIR CARE : A new area of research for the Company will be in haircare ingredients. While the Company has typically spent more of its time developing products for the skincare market, it is putting more effort now into the development of haircare products. The Company will be working with its UK marketing partner to gain insight into this market, focusing on developing “natural” hair care ingredients. Since the Company’s current “natural” line has some overlap with the haircare market it is confident that with additional insight from its marketing partners it will be able to create products for customers that want to elevate their haircare formulations with natural ingredients. The Company intends to continue to work with its marketing partners during all of the stages of product development to ensure that our ingredients are meeting customer needs.   LUBRAJEL DV PF and LUBRAJEL MS PF : The Company developed two additional products for its growing line of preservative-free products. The preservative-free offerings enable formulators to use their own preservative systems without having to account for preservatives already incorporated into the products. Both products will be launched with its UK marketing partners in the second quarter of 2022.   It should be emphasized that some of the projects listed above are in the very early stages of research and development, and there can be no guarantee that any particular development project will result in a marketable product or in significant sales if it is marketed.      The Company’s research and development expenses in 2021 were $478,642 compared with $451,208 in 2020. The Company expects its research and development expenses in 2022 to be comparable to those of 2021. Any additional increase in development and/or production costs will depend on whether capital investments are required in order to continue development work on, or to manufacture, any of the new products under development.   The Company requires all employees and consultants who may receive confidential and proprietary information to agree in writing to keep such information confidential.     8   UNITED-GUARDIAN, INC.   TRADEMARKS AND PATENTS   The Company strongly believes in protecting its intellectual property. In the past, the Company filed for patent protection in connection with many of its products and processes, and over the years was issued at least 32 patents, all of which are now expired. However, under current patent law the filing of a patent now provides detailed proprietary information that can be used by companies in other countries where enforcement would be difficult and expensive, such as in China. As a result, the Company decided in recent years to generally forego patent protection and rely instead on trade secret protection to protect its intellectual property, including its proprietary product formulations and manufacturing methods. The Company will continue to consider filing patent applications in situations where it believes that relying on trade secrets would not provide sufficient protection.   The various trademarks and trade names owned or used by the Company in its business are of varying importance to the Company. The most significant trademarks are Lubrajel®, Renacidin®, and Clorpactin®.   DOMESTIC SALES   COSMETIC INGREDIENTS :   In the United States the Company's cosmetic ingredient products are marketed and distributed exclusively by ASI in accordance with a marketing agreement entered into in 1996 with its predecessor company, International Specialty Products (“ISP”). That agreement was for the marketing of the Company’s cosmetic ingredients in North, Central, and South America. Since that time, this initial agreement has been modified and expanded multiple times (see “Marketing Agreements” below), most recently in 2019 when Korea was added to ASI’s marketing territory. ASI also has the exclusive right to market globally four of the Company’s products: Lubrajel Marine , which was the second product in the Company’s Lubrajel Natural line of products; Lubrajel BA , an oral care product which was specifically developed for ASI in 2012 but which, to date, has not had significant sales; and two of the Company’s preservative-free products, Lubrajel Oil PF and Lubrajel II XD PF . ASI also has a non-exclusive right to sell certain of the Company's other industrial and medical products. The current agreement with ASI automatically renewed on January 1, 2022 and will automatically renew again on January 1, 2024 unless either party chooses to terminate, which can be done by giving 60 days’ notice prior to the then expiration date.   Revenue from domestic sales of all Company products accounted for approximately 80% of the Company’s total sales in both 2021 and 2020. Domestic sales of cosmetic ingredients accounted for approximately 41% of total Company sales in 2021, compared with 30% in 2020. Sales to the Company’s largest marketing partner, ASI, accounted for approximately 40% of total Company sales in 2021 and 29% of sales in 2020. It should be noted, however, that while all sales to ASI are considered domestic sales because all shipments to ASI are delivered to ASI in the U.S., a significant percentage of ASI’s purchases from the Company are ultimately sold to foreign customers. Based on sales information provided to the Company by ASI, 74% of ASI’s sales in 2021 were to customers in foreign countries, compared with 68% in 2020.   PHARMACEUTICALS :   The Company’s pharmaceutical products are marketed only in the United States and are sold primarily through full-line drug wholesalers. Sales of those products accounted for approximately 34% of Company sales in 2021, compared with approximately 41% in 2020.   During 2021 and 2020, the Company participated in various government drug rebate programs related to the sale of Renacidin®, its most important pharmaceutical product. These programs include the Veterans Affairs Federal Supply Schedule (FSS), and the Medicare Part D Coverage Gap Discount Program (CGDP). These programs require the Company to sell its product at a discounted price. In addition, during 2020, the Company participated in the Medicaid Drug Rebate Program (MDRP), which required the Company to pay a significant rebate to the various states where Renacidin was provided to Medicaid patients, as well as the Section 340B Drug Pricing Program (340B), which required the Company to sell their product at a deeply discounted price. Due to the overly burdensome nature of these Medicaid rebates on the Company, and the deeply discounted pricing associated with the 340B Program, the Company terminated its participation in the MDRP and the 340B Programs, 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).   9   UNITED-GUARDIAN, INC.   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.   MEDICAL PRODUCTS :   The Company’s non-pharmaceutical medical products, such as its catheter lubricants and oral care products, are sold by the Company directly to the end users or to contract manufacturers utilized by the end users. These products are also available for sale on a non-exclusive basis through its marketing partners if they choose to market those products. Domestic sales of the Company’s medical products accounted for approximately 4% of the Company’s total sales in 2021, compared with 8% in 2020. Although all shipments of medical products to U.S. locations are considered domestic sales, a percentage of those shipments are subsequently shipped by some customers to foreign manufacturing facilities, which then produce finished products that could be marketed globally .   INDUSTRIAL PRODUCTS :   Domestic sales of the Company’s specialty industrial products accounted for less than 2% of Company sales in both 2021 and 2020. These products are sold directly to end-user customers or their contract manufacturers, who incorporate these products into their finished products.   FOREIGN SALES   In both 2021 and 2020, approximately 20% of the Company’s sales revenue was from foreign sources, and was derived from (a) sales of its cosmetic ingredients to the Company’s foreign marketing partners, which accounted for approximately 9% of Company sales in 2021 and 2020 and (b) sales of some of the Company’s medical products directly to certain customers in foreign countries, which accounted for approximately 11% of Company sales in both 2021 and 2020.   Because all shipments to the Company’s largest marketing partner, ASI, are delivered to ASI’s warehouses in the U.S., all sales to ASI are included in “Domestic Sales”, even though a significant percentage of ASI’s sales of the Company’s products are to customers in foreign countries. Based on sales information provided to the Company by ASI, 74% of ASI’s sales of the Company’s products in 2021 were to customers in foreign countries, compared with 68% in 2020. ASI’s largest foreign market in both 2021 and 2020 was China, which accounted for approximately 41% of ASI’s sales of Company products in 2021 and 34% in 2020.   Since the Company sells its products in U.S. Dollars, the Company’s selling prices are generally not affected by fluctuations in foreign currency exchange rates, except to the extent that a stronger dollar compared with foreign currencies can make the Company’s products less competitive in foreign markets, sometimes requiring the Company to adjust its prices in order to be more competitive. As a result of the weakened dollar in the second half of 2020 and the first half of 2021 , the Company’s products became more competitive in Europe, but in the second half of 2021 the dollar strengthened against the Euro, which again made the Company’s products less competitive. Current indications are that it is likely that the dollar will continue its current strength against the Euro for most if not all of 2022.   10   UNITED-GUARDIAN, INC.   SALES AND MARKETING   The Company markets its products through marketing partners and distributors, promotion on the Company’s websites, and by internet advertising, and has some direct sales to customers as well. The cosmetic ingredients are sold outright (not on consignment) to the Company’s marketing partners, which in turn market and resell the products to cosmetic and other personal care product manufacturers for use in the formulation of one or more of their products. The pharmaceutical products are sold in the United States primarily to drug wholesalers, which in turn distribute and resell those products to drug stores, hospitals, physicians, long-term care facilities, the U.S. Department of Veterans Affairs, and other government agencies. The medical and specialty industrial products are sold by the Company directly to the end users of those products. The industrial products are older products that have limited marketability but are still being sold to some long-time customers. They are not actively marketed but are available for sale to any new customers.   MARKETING AGREEMENTS   The Company has a written marketing agreement only with ASI. All other marketing arrangements are subject to cancellation at any time by either the Company or the marketing partner. The marketing agreement with ASI gives it exclusive foreign marketing rights with the exception of the following territories, where the Company's other marketing partners have exclusive marketing rights: the United Kingdom (by The Azelis Group); France (by Sederma SAS, a subsidiary of Croda International Plc.); Italy (by Safic-Alcan); and Switzerland (by Azelis Cosmetics GmbH.).   That agreement set forth provisions under which ASI would market and distribute the Company's cosmetic ingredients, as well as some medical and specialty industrial products, in certain parts of Europe, Asia, Australia, and Africa. In 1996, the parties entered into another agreement, which extended ASI’s distribution rights to the United States, Canada, Mexico, and Central and South America, and in December 2019 the marketing rights in Korea were transferred to ASI from the Company’s previous distributor for Korea. In July 2000, December 2002, December 2005, May 2010, November 2012, and November 2013 the parties entered into additional agreements that modified, extended, and consolidated the 1994 and 1996 agreements, and provided for automatic two-year renewals of ASI’s marketing rights unless either party terminated the arrangement upon 60 days’ notice. The agreement automatically renewed on January 1, 2012, 2014, 2016, 2018, 2020, and 2022 for additional two-year terms. The current contract ends on December 31, 2023.   The Company believes that in the event ASI were to cease marketing the Company's products alternative arrangements could be made with one of the other global marketers of cosmetic ingredients to continue to supply products to customers currently using the Company's products, without any significant interruption of sales.   RAW MATERIALS   The principal raw materials used by the Company consist of common industrial organic and inorganic chemicals. Most of these materials are available in ample supply from numerous sources. The Company has six major raw material vendors that together accounted for approximately 94% of the raw material purchases by the Company in 2021 and 88% in 2020.       11   UNITED-GUARDIAN, INC.   INVENTORIES, RETURNS, and ALLOWANCES   It is important for the Company to maintain moderate inventory levels of certain of its finished goods in order to fulfill purchase orders in a timely manner. Historically, sufficient inventory levels, returns, and allowances have not been a significant factor in the Company's business.   BACKLOG   The Company currently does not have any significant backlog of orders.   SEASONALITY   Due to the nature of the Company's business and the types of products it markets, it is not subject to any significant seasonal fluctuations in sales.   CUSTOMERS   The Company’s cosmetic ingredients are currently marketed and sold globally by five marketing partners. Those marketing partners in turn market and distribute those products to their customers. Although the Company depends on those marketing partners for the marketing and distribution of its cosmetic ingredients, it is confident that if any of its marketing partners were to decide not to sell the Company’s products, or if the Company chose to replace one or more of those marketing partners, it would be able to put in place new marketing agreements to service its customers in all the geographic areas affected. If necessary, the Company would also be able to sell directly to the end users of its products until such time as a new marketing partner is put in place.   The Company’s pharmaceutical products are sold to, and distributed by, full-line drug wholesalers throughout the United States. Its medical and specialty industrial products are sold directly by the Company to the end users of those products or, in some cases, to contract manufacturers used by some of those end users.   COMPETITION   The Company has some products or processes that are either proprietary or have some unique characteristics. Its Lubrajel line of products is well known globally and has a long-standing reputation for high quality. The Company believes that these characteristics will be advantageous to the Company in its continuing efforts to compete effectively with other companies marketing similar products. The pharmaceutical, health care, and cosmetic industries are all highly competitive, and during 2021 the Company experienced a high level of competition for its cosmetic ingredients both in the U.S. and in foreign markets. In 2021 the value of the U.S. dollar gradually strengthened relative to some other foreign currencies, in particular the Euro, which made the Company’s products a little less competitive in those markets than it had been when the dollar was not as strong. Regardless of the changes in the currency situation, the Company believes that there will continue to be significant competition for its products, especially from Asian competitors, and it may sometimes be necessary for the Company to lower its prices, and reduce its profit margins, in order to remain competitive. The Company intends to continue to work closely with its marketing partners to remain as competitive as possible.   The Company is aware that there are other domestic and foreign companies that are engaged in the same or similar areas of research as those in which the Company is engaged, some of which have substantially greater financial, research, manpower, marketing and distribution resources than the Company. In addition, there are many large, integrated and established companies that have greater capacity than the Company to develop and to commercialize the types of products upon which the Company's research and development programs are based. The Company intends to continue to focus its research efforts on the development of new and innovative products for which there is not the same level of competition as there is for some of the Company’s older products. The Company is optimistic that its development of unique products, including products made exclusively with natural ingredients, will enable it to continue to compete in a market in which competition has become more of a factor than it had been in the past.   12   UNITED-GUARDIAN, INC.   ISO 9001:2015 REGISTRATION   On July 23, 2018, the Company was certified by Underwriters Laboratories, Inc. to be in compliance with the latest ISO standard, ISO 9001:2015, indicating that the Company's documented procedures and overall operations had attained the high level of quality needed to comply with this current ISO certification level. From October 2009 to July 2018, the Company had been registered under the ISO 9001:2008 standard; from December 2003 to October 2009, the Company had been registered under the ISO 9001:2000 standard; and between November 1998 and December 2003 the Company had been registered under the ISO 9002 standard. The Company’s current ISO 9001:2015 certification is valid through July 22, 2024. The Company has been in continuous compliance with ISO standards since November 1998.   GOVERNMENT REGULATION   Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacturing and marketing of many of the Company's products. The Company and many of the Company's products are subject to certain government regulations. Some products developed and sold by the Company in the United States may require approval from federal regulatory agencies, such as the U.S. Food & Drug Administration (“FDA”), as well as state regulatory agencies. Some products developed and sold by the Company outside the United States may require approval from foreign regulatory agencies. Although the Company does not currently market any medical devices, if it were to do so a 510(k) pre-market notification to the FDA would be required to demonstrate that the device is at least as safe and effective as a legally marketed device. The Company would then need to receive clearance from the FDA prior to marketing the device. While the Company does not have any plans to develop new pharmaceutical products, if it decided to do so any new drug product would require clinical evaluation under an Investigational New Drug Application, and the subsequent submission to the FDA of a New Drug Application.   The Company is required to comply with all pertinent current Good Manufacturing Practices of the FDA for medical devices and drugs. Accordingly, the regulations to which the Company and certain of its products may be subject, and any changes with respect thereto, may materially affect the Company's ability to produce and market new products developed by the Company.   The Company's present and future activities are, and will likely continue to be, subject to varying degrees of additional regulation under the Occupational Safety and Health Act, Environmental Protection Act, import, export and customs regulations, and other present and possible future foreign, federal, state and local regulations.   Portions of the Company's operating expenses are directly attributable to complying with federal, state, and local environmental statutes and regulations. In 2021 and 2020, the Company incurred approximately $32,000 and $13,000 respectively, in federal, state, and local environmental law compliance expenses. There was no material financial or other impact on the Company as a result of compliance with environmental laws.   ENVIRONMENTAL, SOCIAL, and CORPORATE GOVERNANCE   As a manufacturer with global sales, the Company is committed to sustainable growth and lowering its impact on the local community. It is committed to measuring and monitoring its impact on the environment and continually improving. The Company complies with all federal/state/local environmental regulations, and has recently initiated a carbon footprint monitoring program and will be setting goals to lower its impact on the environment during the coming years. The Company has also joined initiatives for core raw materials, such as RSPO, to ensure that it supports suppliers in protecting the environment and the people in it. It is committed to using green chemistry principles to produce biodegradable, natural, and safe products with renewable feedstocks.   13   UNITED-GUARDIAN, INC.   As part of the Company’s commitment to corporate social responsibility (“CSR") it joined EcoVadis, a global leader in guiding, measuring, and improving corporate environmental and social responsibility and sustainability performance. The EcoVadis assessment measured 21 key issues centered around the environment, labor & human rights, ethics, and sustainable procurement. In its latest evaluation the Company scored in the top 15% of companies evaluated.   As part of the assessment, it was determined that the Company was strong in the following four areas:     1) Environmental   a) Company-specific emergency preparedness and response procedure regarding customer health and safety   b) Measure to detect and/or eliminate accidental water contamination   c) Formalized procedure related to materials/chemicals management   d) Provision of Safety Data Sheets   e) Employee awareness/training program on transportation of hazardous materials   f) Measures to avoid emissions of dust or particles     2) Labor & Human Rights   a) Labor and human rights policy   b) Formalized procedure related to employee health and safety   c) Compensation for extra or atypical working hours   d) Additional leave beyond standard vacation days   e) Bonus scheme related to Company performance   f) Heath care coverage of employees in place   g) Whistleblower procedure on discrimination and harassment   h) Awareness training regarding diversity, discrimination and/or harassment   i) Regular assessment (yearly) of individual performance   j) Active preventative measures for stress and noise   k) Training of relevant employees on health and safety risks and best working practices     3) Ethics a) Disciplinary sanctions to deal with policy violations b) Policy on information security c) Polices on corruption d) Whistleblower procedure to report ethics issues     4) Sustainable Procurement a) Roundtable on Sustainable Palm Oil (RSPO) Supply Chain Certification b) Formal assessment of supplier’s progress with regards to REACH requirements c) No use of tin, tantalum, tungsten, gold, and/or their derivatives           Areas that required continual improvements were reviewed, and programs and policies were implemented as follows:     1) Environmental impact from product end of life: The Company joined a prescription take-back program for its pharmaceutical products in the state of California.   14   UNITED-GUARDIAN, INC.     2) Measures on energy consumption and GHG’s: The Company created a carbon footprint procedure that will roll out later in 2022 to assess its current energy consumption, with the goal of reducing that consumption in subsequent years.     3) Established formal CSR Policy: The Company created a CSR policy to establish a framework for its commitment to sustainable performance.   HEALTH & SAFETY   The Company values its employees, partners, and the planet, and is committed to protecting the safety, health, and security of its employees and that of the environments in which it operates. It is firm in its policy that it will not compromise employee health and safety or the environment for profit or production. It is passionate about health and safety and prides itself on its strategy of prevention through proactive risk elimination and reduction. The coronavirus pandemic introduced a number of unprecedented challenges, but the Company implemented policies and protocols as needed to help prevent the spread of the disease in its facilities, while continuing to operate as an essential business to serve its customers. Such policies and protocols included physical distancing, mandating face coverings, restricting visitation, and educating employees about the disease, its prevention, and vaccines.   EMPLOYEES   The Company presently has 24 employees, 4 of whom serve in an executive capacity, 16 in research, quality control and manufacturing, 2 in maintenance and construction, and 2 in office and administrative support services. Of the total number of employees, 22 are full time.   Item 1A. Risk Factors.   The information to be reported under this item is not required of smaller reporting companies.   Item   1B. Unresolved Staff Comments.   The information to be reported under this item is not required of smaller reporting companies.