What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-03-22 compared with 2023-03-23 · 6 added, 175 removed, 6 unchanged (97% of the section changed)

Market for Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our Common Stock is currently traded on the NASDAQ Global Market, under the symbol “UG”

Holders of Record

1 unchanged sentence

Cash Dividends

On May 10, 2022, our Board of Directors declared a semi-annual cash dividend of $0.37 per share, which was paid on June 1, 2022 to all stockholders of record as of May 23, 2022.

On November 15, 2022, our Board of Directors declared a semi-annual cash dividend of $0.31 per share, which was paid on December 7, 2022 to all stockholders of record as of November 28, 2022.

On July 12, 2023, our Board of Directors declared a cash dividend of $0.10 per share, which was paid on August 2, 2023, to all stockholders of record as of July 26, 2023.

The Company did not declare any other dividends in 2023.

In June of 2023, the Company’s Board of Directors changed the Company’s dividend declaration practice and expects to consider a semi-annual dividend declaration in January and July of each year.

On January 30, 2024, our Board of Directors declared a cash dividend of $.0.25 per share, which was paid on February 20, 2024 to all stockholders of record as of February 12, 2024.

On May 10, 2022, our Board of Directors declared a semi-annual cash dividend of $0.37 per share, which was paid on June 1, 2022 to all stockholders of record as of May 23, 2022.

On November 15, 2022, our Board of Directors declared a semi-annual cash dividend of $0.31 per share, which was paid on December 7, 2022 to all stockholders of record as of November 28, 2022.

UNITED-GUARDIAN, INC.

Item 6. 

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

Impact of the Coronavirus Pandemic, Global Supply Chain Instability and Inflation

While the coronavirus pandemic continues to impact certain areas of our operations, the current impact on our financial performance is coming primarily from 1) higher raw material costs and increased shipping costs, which had an impact on our gross profit margins during 2022, and 2) a decrease in cosmetic ingredient sales in China due to China’s zero-COVID mandate that was in effect for a substantial part of 2022.

The pandemic did not significantly affect our ability to obtain raw materials, but due to supply chain instability, we have experienced longer lead times and higher prices for many of our raw materials.

The increased raw material prices had an impact on our gross profit margins in 2022 and may continue to have an impact on gross profit margins in upcoming quarters.

In response to rising raw material prices, we have instituted price increases on many of our products, which will help to reduce the impact on our gross margins in the future.

As a result of the lingering effects of the coronavirus pandemic as described above, combined with global supply chain instability, there continues to be uncertainty regarding the potential impact on our operations or financial results.

We believe that we are still unable to provide an accurate estimate or projection as to what the future impact of the pandemic will be on our future operations or financial results.

While it is unknown whether inflation will continue to increase or will begin to mitigate during 2023, continued inflation is likely to result in further increases in raw material costs, shipping costs, and internal labor costs, which could impact our future results of operations.

Critical Accounting Policies

Our financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“US GAAP”).

Preparation of financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities.

We use our historical experience and other relevant factors when developing our estimates and assumptions, which are continually evaluated.

Note A, Nature of Business and Summary of Significant Accounting Policies, of the Notes to Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report includes a discussion of our significant accounting policies.

The following accounting policies are those that we consider critical to an understanding of the financial statements because their application places the most significant demands on management’s judgment.

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

Marketable Securities

Our marketable securities include investments in equity and fixed income mutual funds.

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

Realized gains or losses on mutual funds are determined on a specific identification basis.

We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value had been below cost basis, the financial condition of the issuer and our ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value.

We record an impairment charge to the extent that the cost of the available-for-sale securities exceeds the estimated fair value of the securities and the decline in value is determined to be other-than-temporary.

During 2022 and 2021, we did not record an impairment charge regarding our investment in marketable securities because our management believes, based on an evaluation of the circumstances, that the decline in fair value below the cost of certain of our marketable securities is temporary.

UNITED-GUARDIAN, INC.

Revenue Recognition

We record revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.”

Under this guidance, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services.

Our principal source of revenue is product sales.

Our sales, as reported, are subject to a variety of deductions, some of which are estimated.

These deductions are recorded in the same period in which the revenue is recognized.

Such deductions, primarily related to the sale of our pharmaceutical products, include chargebacks from the United States Department of Veterans Affairs (“VA”), rebates in connection with our current participation in Medicare programs, distribution fees, discounts, and outdated product returns.

These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on sales for a reporting period.

During 2022 and 2021, we participated in various government drug rebate programs related to the sale of Renacidin®, our most important pharmaceutical product.

These programs include the Veterans Affairs Federal Supply Schedule (“FSS”), and the Medicare Part D Coverage Gap Discount Program (“CGDP”).

These programs require us to sell our products at a discounted price, typically in the form of a rebate.

Our sales, as reported, are net of these rebates, some of which are estimated and are recorded in the same period that the revenue is recognized.

As long as a valid purchase order has been received and future collection of the sale amount is reasonably assured, we recognize revenue from sales of our products when those products are shipped, which is when our performance obligation is satisfied.

Our cosmetic products are shipped “Ex-Works”

from our facility in Hauppauge, NY, and the risk of loss and responsibility for the shipment passes to the customer upon shipment.

Sales of our medical lubricant products are deemed final upon shipment, and we have no obligation to repurchase or allow the return of these goods unless they are defective.

Sales of our pharmaceutical products are final upon shipment unless (a) they are found to be defective;

(b) the product is damaged in shipping;

or (d) the product is expired but is not more than one year after its expiration date.

These return policies are in conformance with standard pharmaceutical industry practice.

We estimate an allowance for outdated material returns based on previous years’

historical returns of our pharmaceutical products.

We do not make sales on consignment, and the collection of the proceeds of the sale of any of the Company’s products is not contingent upon the customer being able to sell the goods to a third party.

Any allowances for returns are taken as a reduction of sales within the same period the revenue is recognized.

Such allowances are determined based on historical experience under ASC Topic 606-10-32-8.

We have not experienced significant fluctuations between estimated allowances and actual activity.

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

Our standard credit terms, which vary depending on the customer, range between 30 and 60 days.

We use our judgment on a case-by-case basis to determine our ability to collect outstanding receivables and provide allowances for any receivables for which collection has become doubtful.

As of December 31, 2022 and December 31, 2021, the allowance for doubtful accounts receivable was $20,063 and $20,252, respectively.

Prompt-pay discounts are offered to some customers;

however, due to the uncertainty of the customers taking the discounts, the discounts are recorded when they are taken.

We have distribution agreements with certain distributors of our pharmaceutical products that entitle those distributors to distribution and services-related fees.

We record distribution fees, and estimates of distribution fees, as offsets to revenue.

UNITED-GUARDIAN, INC.

Accounts Receivable Allowance

We perform ongoing credit evaluations of our customers and adjust credit limits, as determined by a review of current credit information.

We continuously monitor collection and payments from customers and maintain an allowance for doubtful accounts based upon historical experience, anticipation of uncollectible accounts receivable and any specific customer collection issues that have been identified.

While our credit losses have historically been low and within expectations, we may not continue to experience the same credit loss rates that have historically been attained.

The receivables are highly concentrated in a relatively small number of customers.

Therefore, a significant change in the liquidity, financial position, or willingness to pay timely, or at all, of any one of our significant customers would have a significant impact on our results of operations and cash flows.

Inventory Valuation Allowance

In conjunction with our ongoing analysis of inventory valuation, management constantly monitors projected demand on a product-by-product basis.

Based on these projections, management evaluates the levels of write-downs required for inventory on hand and inventory on order from contract manufacturers.

Although we believe that we have been reasonably successful in identifying write-downs in a timely manner, sudden changes in buying patterns from customers, either due to a shift in product interest and/or a complete pull back from their expected order levels, may result in the recognition of larger-than-anticipated write-downs.

We have performed an evaluation of our inventory on hand as of December 31, 2022, and believe the reserve is adequate to cover any slow-moving or obsolete inventory.

We do not believe the value of our finished products, work in process or raw material inventories have been adversely affected by the current inflationary environment.

RESULTS OF OPERATIONS

Sales decreased by approximately 9%, from $13,929,629 in 2021 to $12,698,503 in 2022.

The decrease in sales was primarily due to a decrease in sales of our cosmetic ingredient products, specifically a decrease of 28% in sales to our largest distributor, ASI, in 2022 compared with 2021.

Cosmetic Ingredients

Sales of our cosmetic ingredients decreased by approximately 25%, from $6,872,714 in 2021, to $5,167,909 in 2022.

The decrease in sales of cosmetic ingredients was caused by the following factors:

1) supply chain issues faced by certain contract manufactures caused them to overstock products in 2021 in order to avoid not being able to obtain products in 2022, which resulted in a reduction of purchases of these products by certain contract manufacturers in 2022, and 2) lower demand in Asia, especially in China, due to China’s zero-COVID mandate that was in place for much of 2022.

Sales to our other four distributors decreased by a net of approximately 11%, and sales to four of our small direct cosmetic ingredient customers decreased by approximately 54%.

We continue to experience global competition from Asian and European companies that manufacture and sell products that are competitive with our products.

These competitive products are usually sold at a lower price than our products;

however they may not compare favorably to the level of performance and quality of our products.

The strengthening of the U.S.

dollar in 2022, which reached its highest level in 20 years, made our products less competitive, as they became more expensive in other countries.

We continue to work closely with our network of distributors to price our products as competitively as possible and, when appropriate, to offer additional volume discounts and more aggressive pricing to maintain and increase sales and expand our customer base.

UNITED-GUARDIAN, INC.

We expect that this competitive environment will continue in 2023 and we plan to enhance our competitive position by strengthening our core capabilities and investing in new products, especially in the area of naturally-derived products.

We will also continue providing high-quality products, excellent technical support, and the reliability our customers have come to expect from us.

Pharmaceuticals

Because there are fees, rebates, and allowances associated with sales of our two pharmaceutical products, Renacidin and Clorpactin, discussion of our pharmaceutical sales includes references to both gross sales (before fees, rebates and allowances) and net sales (after fees, rebates and allowances).

Gross sales of our two pharmaceutical products, Renacidin and Clorpactin, together increased by 3%, from $5,748,244 in 2021 to $5,929,216 in 2022.

Gross sales of Renacidin increased by 3%, from $5,041,460 in 2021 to $5,181,190 in 2022, and gross sales of Clorpactin increased by 6% from $706,784 in 2021 to $748,026 in 2022.

Net sales of our pharmaceutical products increased by approximately 4% in 2022 compared with the same period in 2021.

The increase in net sales was due to the combination of 1) an increase in gross sales of both of our pharmaceutical products, and 2) a decrease in certain pharmaceutical-related rebates and allowances.

The decrease in pharmaceutical-related rebates and allowances in 2022 was primarily due to a decrease in rebates on sales of our products to the VA and a reduction in sales returns.

Medical Lubricants

Sales of our medical lubricants increased by approximately 14% in 2022, from $2,171,204 in 2021 to $2,470,163 in 2022.

The increase in sales was driven by higher demand from one of our larger contract manufacturer customers located in China, whose sales doubled in 2022 compared to 2021.

Industrial Products

Sales of our industrial products decreased by 22% in 2022 compared with 2021.

We plan on discontinuing the manufacturing and sales of specialty industrial products in the second quarter of 2023.

These products sales represent less than 2% of total sales.

Gross Profit on Sales

Gross profit on sales was 53% in 2022 compared with 59% in 2021.

The decrease in gross profit was due to 1) a decrease in sales of our cosmetic ingredients in 2022 compared to 2021.

These products carry a higher profit margin than our pharmaceutical products.

In 2022, our pharmaceutical sales as a percentage of gross sales was 43% compared to 38% in 2021;

2) increased raw material and shipping costs in 2022 compared with 2021;

3) the recording of $206,621 in rebates payable to one of our marketing partners during 2022;

and 4) the recording of a one-time Employee Retention Credit (“ERC”) in the amount of approximately $105,000 in 2021, which reduced cost of sales during that period.

Operating Expenses

Operating expenses increased by approximately 7%, from $2,035,970 in 2021 to $2,174,127 in 2022.

The increase was mainly attributable to the following factors:

1) increases in fees paid to the independent members of our Board of Directors during 2022 for special projects;

2) an increase in payroll and payroll related expenses, insurance expense and utilities;

and 3) the recording of a one-time ERC in the amount of approximately $31,000 in 2021, which reduced operating expenses for that period.

We anticipate that operating expenses will remain relatively consistent for 2023.

UNITED-GUARDIAN, INC.

Research and Development Expenses

Research and development expenses increased by approximately 3%, from $478,642 in 2021 to $490,770 in 2022.

The increase was primarily related to an increase in payroll and payroll related expenses combined with the recording of an ERC during 2021 in the amount of $28,000 which reduced R&D expenses for that period.

Investment Income

Investment income increased by approximately 1%, from $233,857 in 2021 to $236,695 in 2022.

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

Net loss on Marketable Securities

The net loss on marketable securities increased from a net loss of $23,018 in 2021 to a net loss of $1,046,245 in 2022.

The increased loss was primarily due to 1) the recognition of increased unrealized losses during 2022 due primarily to rising interest rates combined with the downward trajectory of the financial markets during 2022.

Our portfolio of marketable securities is predominantly invested in fixed income mutual funds.

When interest rates began to rise during the year, the value of these funds declined;

and 2) increased realized losses on those same fixed income mutual funds that were sold during the year.

During 2021, we recognized realized gains of $111,917 from the sale of marketable securities, while in 2022, we recorded $364,074 in realized losses from the sale of marketable securities.

Provision for Income Taxes

The provision for income taxes decreased from $1,219,383 in 2021 to $658,168 in 2022.

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

Our effective income tax rate was 20.4% in 2022 and 20.7% in 2021.

Liquidity and Capital Resources

Working capital decreased from $9,245,629 at December 31, 2021 to $8,596,939 at December 31, 2022.

The current ratio increased from 5.0 to 1 at December 31, 2021 to 7.3 to 1 at December 31, 2022.

The decrease in working capital was mainly due to a decrease in marketable securities and accounts receivable.

Accounts receivable (net of allowance for doubtful accounts) as of December 31, 2022 decreased from $1,813,346 in 2021 to $1,427,576 in 2022.

The decrease in accounts receivable was due to a decrease in sales during the third and fourth quarter of 2022.

The receivables turnover, or “Days Sales Outstanding”, for 2022, was 47 days, compared with 42 days in 2021.

The increase in Days Sales Outstanding was primarily due to an increase in the sales of our medical lubricant products in 2022.

These products are primarily sold to customers located overseas and the payment terms for these customers is typically 60 days, as compared with 30-45 days for our domestic customers.

The allowance for doubtful accounts receivable decreased from $20,252 in 2021 to $20,063 in 2022, and we believe that the net balance of our accounts receivable as of December 31, 2022 was, and continues to be, fully collectible.

We generated cash from operations of $2,525,169 in 2022 compared with $5,313,277 in 2021.

The decrease in 2022 was primarily due to a decrease in net income in 2022 compared with 2021, combined with decreases in accounts payable, accrued expenses and deferred revenue.

Net cash provided by investing activities was $897,562 for the year ended December 31, 2022.

Net cash used in investing activities was $183,475 for the year ended December 31, 2021.

The increase in net cash provided by investing activities was mainly due an increase in net proceeds from the sale of marketable securities combined with a decrease in acquisitions of property, plant and equipment in 2022 compared with 2021.

UNITED-GUARDIAN, INC.

Net cash used in financing activities was $3,123,492 and $5,190,033 for the years ended December 31, 2022 and 2021, respectively.

The decrease was due to the payment of lower dividends in 2022 compared with 2021.

During 2022, we paid dividends of $0.68 per share compared with $1.13 per share in 2021.

We believe that our working capital is sufficient to support our operating requirements for the next fiscal year.

Our long-term liquidity position will be dependent upon our ability to generate sufficient cash flow from profitable , and we expect to continue to use our cash to make dividend payments, purchase marketable securities, and to take advantage of other opportunities that may arise that are in the best interest of our Company and our shareholders.

We expect to incur costs of approximately $100,000 in the first six months of 2023 in connection with an upgrade to our building sprinkler system.

We have no off-balance-sheet transactions that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

New Accounting Pronouncements

See Note “A”

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

Quantitative and Qualitative Disclosures about Market Risk.

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

Financial Statements and Supplementary Data.

Annexed hereto starting on page F-1.

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

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity