UNITED GUARDIAN INC 10-K

Item 9A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our 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, 2023. On the basis of that evaluation, management concluded that our 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 our 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). Our internal control system is designed to provide reasonable assurance to management and to our Board of Directors regarding the preparation and fair presentation of published financial statements. Under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial Officer, management conducted an evaluation of the effectiveness of our 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 our internal control over financial reporting was effective as of December 31, 2023. This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Since we are a non-accelerated filer, management’s report is not subject to attestation by our 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 our internal control over financial reporting in the fourth quarter of 2023 that materially affected, or would be reasonably likely to materially affect, our internal control over financial reporting. (d) Limitations of the Effectiveness of Internal Controls The effectiveness of our 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 our disclosure controls and procedures and internal control over financial reporting will detect all errors or fraud. However, our control systems have been designed to provide reasonable assurance of achieving their objectives, and our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures and internal control over financial reporting are effective at the reasonable assurance level. 24 UNITED-GUARDIAN, INC. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 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 2024 Proxy Statement. CODE OF ETHICS We have adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors, and employees serving in any capacity, including the Chief Executive Officer and/or President, Chief Financial Officer, and Principal Accounting Officer. A copy of our Code of Business Conduct and Ethics is available on our website at www.u-g.com/esg. If applicable, we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of our Code of Business Conduct and Ethics applicable to our website. AUDIT COMMITTEE We have an Audit Committee that is currently composed of three independent members of our Board of 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 our accounting and financial reporting processes, including preparation of financial statements and audits; (b) assuring compliance with all applicable legal, regulatory, and ethical responsibilities; (c) evaluating the qualifications and independence of our independent registered public accounting firm; and (d) assessing the effectiveness of our internal controls and risk management procedures. The Committee currently meets at least four 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 by reference to the section entitled “Directors and Executive Officers” to be contained in the Company’s 2024 Proxy Statement. 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 “Directors and Executive Officers” to be contained in the Company’s 2024 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” to be contained in the Company’s 2024 Proxy Statement. 25 UNITED-GUARDIAN, INC. Item 14. Principal Accounting Fees and Services. Change in Registered Public Accounting Firm On August 29, 2023, as directed and approved by the Audit Committee of our Board of Directors, we formally dismissed Baker Tilly as our independent registered public accounting firm. On August 29, 2023, as directed and approved by the Audit Committee, we formally retained Grassi as our independent registered public accounting firm, effective immediately. Audit Fees The aggregate fees that have been or are expected to be billed by Grassi & Co., CPAs P.C. (“Grassi”), our principal accountants, for the quarterly review of our financial statements for the third quarter of 2023 and the audit of our financial statements for the 2023 fiscal year were approximately $82,000. There were no fees billed by Grassi in 2022. The aggregate fees that were billed by Baker Tilly US, LLP (“Baker Tilly”), our former accountants, for the quarterly reviews of our financial statements for the first and second quarters of 2023 were approximately $23,000. The aggregate fees that have been billed by Baker Tilly, our former accountants, for the quarterly reviews of our financial statements for the first, second and third quarters of 2022 and the audit of our financial statements for the 2022 fiscal year were approximately $97,000. Audit-Related Fees During 2023, there were no fees paid to Grassi in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002. No other fees were billed by Grassi for the last two fiscal years that were reasonably related to the performance of the audit or review of our financial statements and not reported under "Audit Fees" above. During 2022, there were no fees paid to Baker Tilly in connection with our 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 our financial statements and not reported under "Audit Fees" above. Tax Fees There were no fees billed by Baker Tilly or Grassi 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 by Grassi or Baker Tilly in 2023 or 2022. 26 UNITED-GUARDIAN, INC. PART IV Item 15. Exhibits and 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. 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/ Donna Vigilante Donna Vigilante President Date: March 19, 2024 27 UNITED-GUARDIAN, INC. 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/ Donna Vigilante President March 19, 2024 Donna Vigilante (Principal Executive Officer) By: /s/ Andrea Young Chief Financial Officer (Controller, Principal Financial Officer, and Principal Accounting March 19, 2024 Andrea Young Officer); Treasurer; Secretary By: /s/ Lawrence F. Maietta Director; Advisor to the Audit Committee; Investment March 19, 2024 Lawrence F. Maietta Committee member By: /s/ Arthur M. Dresner Director; Chairman of the Audit Committee March 19, 2024 Arthur M. Dresner By: /s/ Andrew A. Boccone Director; Audit Committee member March 19, 2024 Andrew A. Boccone By: /s/ Catherine Kolinski Director March 19, 2024 Catherine Kolinski By: /s/ S. Ari Papoulias Director; Audit Committee member; Investment Committee member March 19, 2024 S. Ari Papoulias By: /s/ Ken Globus Chairman of the Board of Directors; Investment Committee member March 19, 2024 Ken Globus 28 UNITED-GUARDIAN, INC. EXHIBIT INDEX Exhibit # Description 2.1 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) 3.1 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) 3.2 By-laws of the Company, as amended and adopted by the Board of Directors on March 18, 2020 (Incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K, dated April 10, 2020) 10.1** Memorandum of Understanding (separation agreement) between Ken Globus and the Company effective November 1, 2022 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 10-Q for the fiscal quarter ended September 30, 2022) 10.2 Manufacturing and supply agreement between the Company and Amsino Healthcare USA, Inc. signed March 30, 2023 and effective as of January 1, 2023 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K dated and filed March 1, 2024) 14.1 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) 21.1 Subsidiaries of the Company: None 31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 32 Joint certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002 97.1* Policy Relating to Recovery of Erroneously Awarded Compensation 101.INS*** Inline XBRL Instance Document 101.SCH*** Inline XBRL Taxonomy Extension Schema Document 101.CAL*** Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*** Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*** Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE*** Inline XBRL Taxonomy Extension Label Presentation Document 104*** Cover Page Interactive Data File (Embedded within the inline XBRL document and included in Exhibit 101). * Filed herewith. ** Management contract or compensatory arrangement. *** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections. 29 UNITED-GUARDIAN, INC. INDEX TO FINANCIAL STATEMENTS (For the years ended December 31, 2023 and 2022) Report of Grassi & Co. CPAs P.C, Independent Registered Public Accounting Firm (PCAOB ID 606 ) F-2 Report of Baker Tilly U.S. LLP, Independent Registered Public Accounting Firm (PCAOB ID 23) F-3 Financial Statements Statements of Income F-4 Balance Sheets F-5 & F-6 Statements of Stockholders' Equity F-7 Statements of Cash Flows F-8 Notes to Financial Statements F-9 - F-22 F-1 UNITED-GUARDIAN, INC. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Audit Committee and Stockholders of United-Guardian, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of United-Guardian, Inc. (the “Company”) as of December 31, 2023, and the related statements of income, stockholders’ equity, and cash flows for the year 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, 2023, and the results of its operations and its cash flows for the year 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 audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit, 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 audit 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 audit 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 audit 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 were no critical audit matters. /s/ GRASSI & CO., CPAs, P.C. We have served as the Company’s auditors since 2023. Jericho, New York March 19, 2024 F-2 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 sheet of United-Guardian, Inc. (the "Company") as of December 31, 2022, the related statements of income, stockholders' equity, and cash flows, for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Baker Tilly US, LLP We served as the Company's auditor from 2019 to 2022. Uniondale, NY March 16, 2023 F-3 UNITED-GUARDIAN, INC. STATEMENTS OF INCOME Years ended December 31, 2023 2022 Net sales $ 10,885,154 $ 12,698,503 Costs and expenses: Cost of sales 5,479,566 5,996,376 Operating expenses 2,078,564 2,174,127 Research and development 463,992 490,770 Total costs and expenses 8,022,122 8,661,273 Income from operations 2,863,032 4,037,230 Other income (expense): Investment income 306,651 236,695 Net gain (loss) on marketable securities 81,095 ( 1,046,245 ) Total other income (expense) 387,746 ( 809,550 ) Income before provision for income taxes 3,250,778 3,227,680 Provision for income taxes 669,408 658,168 Net income $ 2,581,370 $ 2,569,512 Earnings per common share (basic and diluted) $ 0.56 $ 0.56 Weighted average shares (basic and diluted) 4,594,319 4,594,319 See Notes to Financial Statements F-4 UNITED-GUARDIAN, INC. BALANCE SHEETS ASSETS December 31, 2023 2022 Current assets: Cash and cash equivalents $ 8,243,122 $ 830,452 Marketable securities 851,318 5,653,516 Accounts receivable, net of allowance for credit losses of $ 16,672 in 2023 and $ 20,063 in 2022 1,566,839 1,427,576 Inventories, net 1,223,506 1,672,012 Prepaid expenses and other current assets 191,708 201,846 Prepaid income taxes 176,220 185,228 Total current assets 12,252,713 9,970,630 Deferred income taxes, net 50,930 110,544 Property, plant, and equipment: Land 69,000 69,000 Factory equipment and fixtures 4,669,936 4,585,055 Building and improvements 2,976,577 2,895,742 Total property, plant and equipment 7,715,513 7,549,797 Less accumulated depreciation 7,096,318 6,990,636 Total property, plant, and equipment, net 619,195 559,161 TOTAL ASSETS $ 12,922,838 $ 10,640,335 See Notes to Financial Statements F-5 UNITED-GUARDIAN, INC. BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2023 2022 Current liabilities: Accounts payable $ 134,449 $ 30,415 Accrued expenses 1,363,044 1,322,056 Deferred revenue 15,498 --- Dividends payable 21,265 21,220 Total current liabilities 1,534,256 1,373,691 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, 2023 and 2022 459,432 459,432 Retained earnings 10,929,150 8,807,212 Total stockholders ’ equity 11,388,582 9,266,644 TOTAL LIABILITIES AND STOCKHOLDERS ’ EQUITY $ 12,922,838 $ 10,640,335 See Notes to Financial Statements F-6 UNITED-GUARDIAN, INC. STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2023 and 2022 Common stock Shares Amount Retained earnings Total Balance, January 1, 2022 4,594,319 $ 459,432 $ 9,361,837 $ 9,821,269 Net income --- --- 2,569,512 2,569,512 Dividends declared, not paid ($ 0.68 per share) --- --- ( 645 ) ( 645 ) Dividends declared and paid ($ 0.68 per share) --- --- ( 3,123,492 ) ( 3,123,492 ) Balance, December 31, 2022 4,594,319 $ 459,432 $ 8,807,212 $ 9,266,644 Net income --- --- 2,581,370 2,581,370 Dividends declared, not paid ($ 0.10 per share) --- --- ( 45 ) ( 45 ) Dividends declared and paid ($ 0.10 per share) --- --- ( 459,387 ) ( 459,387 ) Balance, December 31, 2023 4,594,319 $ 459,432 $ 10,929,150 $ 11,388,582 See Notes to Financial Statements F-7 UNITED-GUARDIAN, INC. STATEMENTS OF CASH FLOWS Years ended December 31, 2023 2022 Cash flows from operating activities: Net income $ 2,581,370 $ 2,569,512 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 105,682 135,396 (Gain) loss on sale of asset ( 10,000 ) 2,445 Net (gain) loss on marketable securities ( 81,095 ) 1,046,245 Allowance for credit losses ( 3,391 ) ( 189 ) Allowance for obsolete inventory ( 17,000 ) 29,000 Deferred income taxes 59,614 ( 193,766 ) (Increase) decrease in operating assets: Accounts receivable ( 135,872 ) 385,959 Inventories 465,506 ( 290,223 ) Prepaid expenses and other current assets 10,138 ( 9,267 ) Prepaid income taxes 9,008 ( 185,228 ) Increase (decrease) in operating liabilities: Accounts payable 104,034 ( 380,479 ) Accrued expenses 40,988 ( 305,334 ) Deferred revenue 15,498 ( 190,164 ) Income taxes payable --- ( 88,738 ) Net cash provided by operating activities 3,144,480 2,525,169 Cash flows from investing activities: Acquisitions of property, plant and equipment ( 165,716 ) ( 75,179 ) Proceeds from sale of asset 10,000 37,039 Purchases of marketable securities ( 621,852 ) ( 1,931,969 ) Proceeds from sales of marketable securities 5,505,145 2,867,671 Net cash provided by investing activities 4,727,577 897,562 Cash flows from financing activities: Dividends paid ( 459,387 ) ( 3,123,492 ) Net cash used in financing activities ( 459,387 ) ( 3,123,492 ) Net increase in cash and cash equivalents 7,412,670 299,239 Cash and cash equivalents, beginning of year 830,452 531,213 Cash and cash equivalents, end of year $ 8,243,122 $ 830,452 Supplemental disclosure of cash flow information Taxes paid $ 600,000 $ 1,125,000 Supplemental disclosure of non-cash items: Dividends payable $ 45 $ 645 See Notes to Financial Statements F-8 UNITED-GUARDIAN, INC. NOTES TO FINANCIAL STATEMENTS NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business United-Guardian, Inc. (“Registrant” or “Company”) is a Delaware corporation that, through its Guardian Laboratories division, manufactures and markets cosmetic ingredients, pharmaceutical products, medical lubricants and sexual wellness ingredients. Prior to July 1, 2023, the Company manufactured and reported sales of a line of specialty industrial products; however, this product line was discontinued after the second quarter of 2023 due to low sales volume with no growth prospects. The Company 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 94 % and 92 % of the Company’s sales for the years ended December 31, 2023 and December 31, 2022, respectively. Lubrajel accounted for approximately 55 % and 59 % of the Company’s sales for the years ended December 31, 2023 and December 31, 2022, respectively, and Renacidin accounted for approximately 38 % and 33 % of the Company’s sales for the years ended December 31, 2023 and December 31, 2022, respectively. Impact of Global Supply Chain Instability and Inflation The increased raw material prices that the Company experienced during 2022 and the beginning of 2023 stabilized during the latter part of 2023. The continued supply chain instability, primarily caused by military tensions in the Middle East, has impacted vessels’ access to the Red Sea and Suez Canal. The Company is working closely with its suppliers regarding lead times and continues to closely monitor this situation. Although we have not yet experienced any delays in receiving raw materials or an increase in shipping costs, we are aware that the situation is fluid and could impact us at any time. If that occurs, we may experience longer lead times and increased shipping costs for some of our raw materials, which may impact our future gross margins. As a result of this global supply chain instability, there continues to be uncertainty regarding the potential impact on our operations or financial results and we are unable to provide an accurate estimate or projection as to what the future impact will be. 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 credit losses, reserve for inventory obsolescence, accrued distribution fees, outdated material returns, possible impairment of marketable securities and the allocation of overhead. Accounts Receivable and Reserves As of January 1, 2023, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2016-13 , Measurement of Credit Losses on Financial Instruments , and all subsequently issued related amendments, which changed the methodology used to recognize impairment of the Company’s contract receivables. Under this ASU, financial assets are presented at the net amount expected to be collected, requiring immediate recognition of estimated credit losses expected to occur over the asset’s remaining life. This is in contrast to previous U.S. GAAP, under which credit losses were not recognized until it was probable that a loss had been incurred. The Company performed its expected credit loss calculation based on historical accounts receivable write-offs, including consideration of then-existing economic conditions and expected future conditions. The adoption of this ASU did not have a significant impact on the financial statements. Prior to the implementation of ASU No. 2016-13, the Company calculated its reserve for accounts receivable by considering many factors including historical data, experience, customer types, credit worthiness and economic trends. F-9 UNITED-GUARDIAN, INC. The carrying amount of accounts receivable is reduced by an allowance for credit losses that reflects the Company’s best estimate of the amounts that will not be collected as of the balance sheet date. This allowance is based on the credit losses expected to arise over the life of the asset and is based on the Current Expected Credit Losses (“CECL”). At December 31, 2023 and 2022, the allowance for credit losses related to accounts receivable amounted to $ 16,672 and $ 20,063 , respectively. Revenue Recognition The Company records revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.” Under this guidance, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company’s principal source of revenue is product sales. The Company’s sales, as reported, are subject to a variety of deductions, some of which are estimated. These deductions are recorded in the same period in which the revenue is recognized. Such deductions, primarily related to the sale of the Company’s pharmaceutical products, include chargebacks from the United States Department of Veterans Affairs (“VA”), rebates in connection with the Company’s current participation in Medicare programs, distribution fees, discounts, and outdated product returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on sales for a reporting period. During 2023 and 2022, the Company participated in various government drug rebate programs related to the sale of Renacidin, its most important pharmaceutical product. These programs include the Veterans Affairs Federal Supply Schedule (“FSS”), and the Medicare Part D Coverage Gap Discount Program (“CGDP”). These programs require the Company to sell its product at a discounted price. The Company’s sales, as reported, are net of these rebates, some of which are estimated and are recorded in the same period that the revenue is recognized. In August of 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA made significant changes to the current Medicare Part D benefit design as it relates to discounts available to enrollees from pharmaceutical manufacturers of brand name drugs. Beginning on January 1, 2025, the Centers for Medicare & Medicaid Services (“CMS”) will implement a new Medicare Part D Manufacturer Discount Program (“Discount Program”), which will replace the current CGDP. The new Discount Program eliminates the coverage gap benefit phase, introduces pharmaceutical manufacturer discounts in the initial and catastrophic coverage phases and lowers the cap on enrollee out-of-pocket costs. Under the new Discount Program, additional rebates are expected to be owed by pharmaceutical manufacturers due to the restructuring of the benefit periods. The overall financial impact of this new program will vary depending on the products being reimbursed but does have the potential to increase Medicare Part D rebates for drug manufacturers. At this time, the Company is unable to predict what future impact this new program will have on its financial condition; however, it has submitted information to CMS requesting to be classified as a “specified small manufacturer”. If designated as such, the Company would be entitled to a multi-year phase-in period during which it would pay a lower percentage discount on drugs dispensed to beneficiaries. On January 31, 2024, the Company was notified by CMS that it qualified as a specified small manufacturer and will receive the discount phase-in discussed above. F-10 UNITED-GUARDIAN, INC. As long as a valid purchase order has been received and future collection of the sale amount is reasonably assured, the Company recognizes revenue from sales of its products when those products are shipped, which is when the Company’s performance obligation is satisfied. The Company’s cosmetic products are shipped “Ex-Works” from the Company’s facility in Hauppauge, NY, and the risk of loss and responsibility for the shipment passes to the customer upon shipment. Sales of the Company’s non-pharmaceutical medical products are deemed final upon shipment, and there is no obligation on the part of the Company to repurchase or allow the return of these goods unless they are defective. Sales of the Company’s pharmaceutical products are final upon shipment unless (a) they are found to be defective; (b) the product is damaged in shipping; (c) the product cannot be sold because it is too close to its expiration date; or (d) the product has expired (but it is not more than one year after the expiration date). This return policy conforms to standard pharmaceutical industry practice. The Company estimates an allowance for outdated material returns based on previous years’ historical returns of its pharmaceutical products. The Company does not make sales on consignment, and the collection of the proceeds of the sale of any of the Company’s products is not contingent upon the customer being able to sell the goods to a third party. Any allowances for returns are taken as a reduction of sales within the same period the revenue is recognized. Such allowances are determined based on historical experience under ASC Topic 606-10-32-8. At December 31, 2023 and 2022, the Company had an allowance of $ 247,847 and $ 369,154 , respectively, for possible outdated material returns, which is included in accrued expenses. There is no asset value associated with these outdated material returns, as these products are destroyed. The timing between recognition of revenue for product sales and the receipt of payment is not significant. The Company’s standard credit terms, which vary depending on the customer, range between 30 and 60 days. The Company recognizes an allowance for credit losses on its accounts receivable in accordance with ASU 2016-13, which is based on the credit losses expected to arise over the life of the asset and is based on Current Expected Credit Loss (“CECL”). Prompt-pay discounts are offered to some customers; however, due to the uncertainty of the customers taking the discounts, the discounts are recorded when they are taken. At December 31, 2023, the Company recorded advance payments from two of its customers in the amount of $ 15,498 , which was recorded as deferred revenue on the balance sheet. The related performance obligations associated with these payments were satisfied in the first quarter of 2024. No such advanced payments existed at December 31, 2022. The Company has distribution agreements with certain distributors of its pharmaceutical products that entitle those distributors to distribution and services-related fees. The Company records distribution fees, and estimates of distribution fees, as offsets to revenue. Disaggregated net sales by product class are as follows: Years ended December 31, 2023 2022 Cosmetic ingredients $ 4,132,334 $ 5,167,909 Pharmaceuticals 4,950,594 4,943,605 Medical lubricants 1,750,632 2,470,163 Industrial and other 51,594 116,826 Total Net Sales $ 10,885,154 $ 12,698,503 The Company’s cosmetic ingredients are currently marketed worldwide by five distributors, of which the United States (“U.S.”)-based ASI purchases the largest volume. For the years ended December 31, 2023 and 2022, approximately 21 % and 25 %, respectively, of the Company’s sales were to (a) its foreign-based distributors (which does not include ASI), which marketed and distributed the Company’s cosmetic ingredients to customers outside the U.S, and (b) a few foreign customers for the Company’s medical lubricants, which were sold directly to those customers by the Company. F-11 UNITED-GUARDIAN, INC. Disaggregated sales by geographic region are as follows: Years ended December 31, 2023 2022 United States* $ 8,601,205 $ 9,537,124 Other countries 2,283,949 3,161,379 Net Sales $ 10,885,154 $ 12,698,503 * 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, 69 % of ASI’s sales in 2023 were to customers in foreign countries, compared with 65 % in 2022. ASI’s largest foreign market in both 2023 and 2022 was China, which accounted for approximately 29 % of ASI’s sales in 2023 and 38 % of sales in 2022. 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 financially strong, FDIC-insured financial institutions, and it believes that any amounts above FDIC insurance limitations are at minimal risk. The amounts held in excess of FDIC limits at any point in time are considered temporary and are primarily due to the timing of maturities of United States Treasury Bills. 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, 2023 and 2022, $ 315,000 and $ 105,000 , respectively, exceeded the FDIC limit. Dividends On July 12, 2023, the Company’s 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. During 2023, the Company declared total dividends of $ 459,432 , of which $ 459,387 was paid. The balance of $ 45 is payable to stockholders whose old Guardian Chemical shares have not yet been exchanged to United-Guardian, Inc. shares and are pending escheatment. 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, the Company’s Board of Directors declared a semi-annual cash dividend of $ 0.37 per share, which was paid on June 1, 2022, to all stockholders of record as of May 23, 2022. On November 15, 2022, the Company’s Board of Directors declared a semi-annual cash dividend of $ 0.31 per share, which was paid on December 7, 2022, to all stockholders of record as of November 28, 2022. In 2022, the Company declared a total of $ 3,124,137 in dividends, of which $ 3,123,492 was paid. The balance of $ 645 is payable to stockholders whose old Guardian Chemical shares have not yet been exchanged to United-Guardian, Inc. shares and are pending escheatment. F-12 UNITED-GUARDIAN, INC. Marketable Securities The Company’s marketable securities include investments in equity and fixed income mutual funds and certificates of deposit with maturities longer than 3 months. The Company’s marketable equity securities are reported at fair value with the related unrealized and realized gains and losses included in net income. Certificates of Deposit are recorded at amortized cost. 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 2023 and 2022, the Company did not record an impairment charge regarding its investment in marketable securities because management believes, based on its evaluation of the circumstances, that the decline in fair value below the cost of certain of the Company’s marketable securities is temporary. Inventories Inventories are valued at the lower of cost and net realizable value. Net realizable value is equal to the selling price less the estimated costs of selling and/or disposing of the product. Cost is determined using the average cost method, which approximates cost determined by the first-in, first-out (“FIFO”) method. Inventory costs include material, labor and factory overhead. Property, Plant and Equipment Property, plant and equipment are carried at cost, less accumulated depreciation. Major replacements and betterments are capitalized, while routine maintenance and repairs are expensed as incurred. Assets are depreciated under both accelerated and straight-line methods. Depreciation charged as a result of using accelerated methods was not materially different than that which would result from using the straight-line method for all periods presented. Certain factory equipment and fixtures are constructed by the Company using purchased materials and in-house labor. Such assets are capitalized and depreciated on a basis consistent with the Company's purchased fixed assets. Estimated useful lives are as follows: Factory equipment and fixtures 5 - 7 years Building 40 years Building improvements Lesser of useful life or 20 years Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The 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, 2023 and 2022. F-13 UNITED-GUARDIAN, INC. 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 expose 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 credit should be given at all. It is the Company’s policy to discontinue shipments to any customer that is substantially past due on its payments. The Company sometimes requires payment in advance from customers whose payment record is questionable. As a result of its monitoring of the outstanding credit allowed for each customer, as well as the fact that the majority of the Company’s sales are to customers whose satisfactory credit and payment record has been established over a long period of time, the Company believes that its accounts receivable credit risk has been reduced. For the year ended December 31, 2023, four of the Company’s pharmaceutical wholesalers and cosmetic ingredient distributors accounted for approximately 77 % of the Company’s gross sales during the year and approximately 89 % of its outstanding accounts receivable on December 31, 2023. For the year ended December 31, 2022, the same four pharmaceutical wholesalers and cosmetic ingredient distributors accounted for a total of approximately 72 % of the Company’s gross sales during the year and 81 % of its outstanding accounts receivable on December 31, 2022. Supplier 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 has three major raw material vendors that collectively accounted for approximately 83 % and 80 % of the raw material purchases by the Company in 2023 and 2022, respectively. In addition to the Company’s raw materials concentration, the Company utilizes one contract manufacturer for the production of its pharmaceutical product, Renacidin. Any disruption in this manufacturer’s operations could have a material impact on the Company’s revenue stream. 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, 2023 and 2022, 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, 2023 and 2022, the Company did not record any tax-related interest or penalties. The Company’s tax returns for 2020 and all subsequent years are subject to examination by the United States Internal Revenue Service (“IRS) and by the State of New York. 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. Advertising Expenses Advertising costs are expensed as incurred. The Company did not incur any advertising costs for the year ended December 31, 2023. For the year ended December 31, 2022, the Company incurred approximately $ 19,000 in advertising expenses. These expenses were primarily related to the internet marketing of Renacidin, one of the Company’s pharmaceutical products. This marketing effort was discontinued during the fourth quarter of 2022. 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 December 2023, the FASB issued ASU 2023-09 “ Income Taxes- Improvements to Income Tax Disclosures ”. This guidance enhances the transparency and decision usefulness of income tax disclosures. More specifically, the amendments relate to the income tax rate reconciliation and income taxes paid disclosures and require 1) consistent categories and greater disaggregation of information in the rate reconciliation and 2) income taxes paid disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 31, 2024. As of January 1, 2023, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2016-13 , Measurement of Credit Losses on Financial Instruments , and all subsequently issued related amendments, which changed the methodology used to recognize impairment of the Company’s contract receivables. Under this ASU, financial assets are presented at the net amount expected to be collected, requiring immediate recognition of estimated credit losses expected to occur over the asset’s remaining life. This is in contrast to previous U.S. GAAP, under which credit losses were not recognized until it was probable that a loss had been incurred. The Company performed its expected credit loss calculation based on historical accounts receivable write-offs, including consideration of then-existing economic conditions and expected future conditions. The adoption of this ASU did not have a significant impact on the financial statements. NOTE B – CASH AND CASH EQUIVALENTS Cash and cash equivalents include currency on hand, demand deposits with banks or financial institutions, and short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. The following table summarizes the Company’s cash and cash equivalents: F-15 UNITED-GUARDIAN, INC. December 31, 2023 2022 Demand Deposits $ 340,034 $ 314,685 Certificates of Deposit (original 3-month maturity) 125,000 --- Money market funds 1,031,361 18,590 U.S. Treasury Bills (original 3-month maturity) 6,746,727 497,177 Total cash and cash equivalents $ 8,243,122 $ 830,452 NOTE C - MARKETABLE SECURITIES Marketable securities include investments in fixed income and equity mutual funds, which are reported at their fair values, and certificates of deposit with original maturities greater than 3 months, which are recorded at amortized cost. The disaggregated net gains and losses on the marketable securities recognized in the income statement for the years ended December 31, 2023 and 2022 are as follows: Years ended December 31, 2023 2022 Net gains (losses) recognized during the year on marketable securities $ 81,095 $ ( 1,046,245 ) Less: Net losses realized during the year on marketable securities sold during the period 433,769 364,074 Net unrealized gain (loss) recognized during the reporting year on marketable securities still held at the reporting date $ 514,864 $ ( 682,171 ) 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. F-16 UNITED-GUARDIAN, INC. The Company’s marketable equity securities, which are considered available-for-sale securities, are re-measured to fair value on a recurring basis and are valued using Level 1 inputs using quoted prices (unadjusted) for identical assets in active markets. The following tables summarize the Company’s investments: December 31, 2023 Cost Fair Value Unrealized Gain Equity Securities: Equity and other mutual funds $ 574,330 $ 576,318 $ 1,988 Other short-term investments: Fixed income certificates of deposit (original maturities >3 months) 275,000 275,000 --- Total marketable securities $ 849,330 $ 851,318 $ 1,988 December 31, 2022 Cost Fair Value Unrealized (Loss) Gain Equity Securities Fixed income mutual funds $ 5,449,227 $ 4,924,497 $ ( 524,730 ) Equity and other mutual funds 717,165 729,019 11,854 Total equity securities 6,166,392 5,653,516 ( 512,876 ) Total marketable securities $ 6,166,392 $ 5,653,516 $ ( 512,876 ) Investment income is recognized when earned and consists principally of dividend income from equity and fixed income mutual funds and interest income on United States Treasury Bills, certificates of deposit and money market 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 $ 5,505,145 for the year ended December 31, 2023, which included realized losses of $ 433,769 . Proceeds from the sale and redemption of marketable securities for the year ended December 31, 2022 amounted to $ 2,867,671 , which included realized losses of $ 364,074 . NOTE D – INVENTORIES Inventories consist of the following: December 31, 2023 2022 Raw materials $ 476,501 $ 601,125 Work in process 92,089 16,520 Finished products 654,916 1,054,367 Total Inventories $ 1,223,506 $ 1,672,012 Inventories are valued at the lower of cost and net realizable value. Net realizable value is equal to the selling price less the estimated costs of selling and/or disposing of the product. Cost is determined using the average cost method, which approximates cost determined by the first-in, first-out method. Finished product inventories on December 31, 2023 and December 31, 2022 are net of a reserve of $ 47,000 and $ 64,000 , respectively. F-17 UNITED-GUARDIAN, INC. NOTE E – INCOME TAXES The provision for income taxes consists of the following: Years ended December 31, Current 2023 2022 Federal $ 609,006 $ 850,344 State 788 1,590 Total current provision for income taxes 609,794 851,934 Deferred Federal 59,614 ( 193,766 ) State --- --- Total deferred expense (benefit) from income taxes 59,614 ( 193,766 ) Total provision for income taxes $ 669,408 $ 658,168 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, 2023 2022 ($) Tax rate ($) Tax rate Income taxes at statutory federal income tax rate $ 682,664 21.0 % $ 677,813 21.0 % State taxes, net of federal benefit 623 --- 1,256 --- Research & development credits ( 14,000 ) ( 0.4 ) ( 10,000 ) ( 0.3 ) Non-taxable dividends --- --- ( 6,300 ) ( 0.2 ) Other, net 121 --- ( 4,601 ) (0.1 ) Provision for income taxes $ 669,408 20.6 % $ 658,168 20.4 % The tax effects of temporary differences which comprise the deferred tax assets and liabilities are as follows: December 31, 2023 2022 Deferred tax assets Allowance for credit losses $ 3,501 $ 4,213 Inventories 9,870 13,440 Accounts payable 28,235 6,367 R&D expenses 159,838 92,756 Unrealized loss on marketable securities --- 107,704 Accrued expenses 285,200 277,326 Total deferred tax assets $ 486,644 $ 501,806 Deferred tax liabilities Accounts receivable ( 332,537 ) ( 304,004 ) Prepaid expenses ( 46,484 ) ( 42,446 ) Depreciation on property, plant and equipment ( 56,275 ) ( 44,812 ) Unrealized gain on marketable securities ( 418 ) --- Total deferred tax liabilities ( 435,714 ) ( 391,262 ) Net deferred tax asset $ 50,930 $ 110,544 F-18 UNITED-GUARDIAN, INC. NOTE F - BENEFIT PLANS Defined Contribution Plan The Company sponsors a 401(k) defined contribution plan ("DC Plan") that provides for a dollar-for-dollar employer matching contribution of the first 4 % of each employee's pay. Employees become fully vested in employer matching contributions immediately. Company 401(k) matching contributions were approximately $ 83,000 and $ 81,000 for the years ended December 31, 2023 and 2022, 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, 2023 and 2022, respectively, the Company’s Board of Directors authorized discretionary contributions in the amount of $ 109,000 to be allocated among all eligible employees. Employees become vested in the discretionary contributions as follows: 20 % after two years of employment, and 20 % for each year of employment thereafter until the employee becomes fully vested after six years of employment. The discretionary contribution for 2023 will be paid in March 2024 and is included in accrued expenses. NOTE G - GEOGRAPHIC AND OTHER INFORMATION Through its Guardian Laboratories division, the Company conducts research, product development, manufacturing, and marketing of cosmetic ingredients, pharmaceuticals, medical lubricants and sexual wellness ingredients. Prior to July 1, 2023, the Company manufactured and reported sales of a line of specialty industrial products, however this produce line was discontinued after the second quarter of 2023 due to low sales volume with no growth. All the products that the Company markets, with the exception of Renacidin, are produced at its facility in Hauppauge, New York. Renacidin, a urological product, is manufactured for the Company by an outside contract manufacturer. The Company’s R&D department not only develops new products but also modifies and refines existing products, with the goal of expanding the potential markets for the Company’s products. Many of the 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 five distinct product categories: cosmetic ingredients, pharmaceuticals, medical lubricants, sexual wellness ingredients and industrial products. The Company discontinued its industrial line of products after the second quarter of 2023 due to a low volume of sales and no growth. Each product category is marketed differently. The cosmetic ingredients are marketed through a global network of distributors. These distributors purchase products 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 currently has no written distribution agreements with the companies that market its cosmetic ingredients. The marketing contract with ASI terminated on December 31, 2023, and the Company is currently in negotiations with ASI to establish a new marketing agreement. The Company anticipates that it will have a new marketing agreement in place with ASI by the end of the second quarter. The Company’s relationship with ASI continues to be strong, and during this period of renegotiation the Company is continuing to fill ASI’s orders on a timely basis. 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 include a urological product and a topical biocide that are sold to end users primarily through distribution agreements with the major drug wholesalers. For these products, the Company does the marketing, and the drug wholesalers supply the product to the end users, such as hospitals and pharmacies. The Company’s marketing effort for Renacidin, its most important drug product, centers around a separate Renacidin website. There is currently no active marketing effort for Clorpactin. Both of these products were originally developed in the 1950s. Clorpactin pre-dated the need for a formal New Drug Application (“NDA”), and the current sterile liquid form of Renacidin is marketed under an NDA that was approved by the FDA in 1990. The medical lubricants are not pharmaceutical products. They consist primarily of water-based lubricating gels, which are marketed by the Company directly to manufacturers that incorporate them into urologic catheters and other medical devices and products that they sell. These products are distinguished from the pharmaceutical products in that, unlike the pharmaceutical products, the Company is not required to obtain regulatory approval prior to marketing them. Approvals are the responsibility of the companies that market the products in which the Company’s products are used, which are typically classified as medical devices. However, the Company is responsible for manufacturing these products in accordance with current Good Manufacturing Practices, and its manufacturing facility is subject to regular FDA oversight. The industrial products were marketed by the Company directly to manufacturers, and generally did not require that the Company obtain regulatory approval. However, the manufacturers of the finished products may have to obtain such regulatory approvals before marketing these products. The Company discontinued this product line on July 1, 2023. The sexual wellness ingredients are marketed by Brenntag Specialties, a global market leader in chemicals and ingredient distribution. The Company entered into a marketing and distribution agreement with Brenntag in October of 2023 in the United States, Canada, Mexico, Central America and South America. The following tables present the significant concentrations of the Company’s sales. Although a significant percentage of Customer A’s purchases from the Company are sold to foreign customers, in table “(b)” below all sales to Customer A are included in the “United States” sales numbers because all shipments to Customer A are delivered to Customer A's warehouses in the U.S. In addition, there are four customers for the Company’s medical lubricants that take delivery of their shipments in the U.S. but potentially ship some of that product to manufacturing facilities outside the U.S. Since the Company makes those shipments to U.S. locations, sales to those customers are also included in the “United States” sales number in the table below. (a) Net Sales Years ended December 31, 2023 2022 Cosmetic Ingredients $ 4,283,071 $ 5,388,365 Pharmaceuticals 5,894,220 5,929,216 Medical Lubricants 1,750,632 2,471,555 Industrial and other 51,594 116,826 Gross Sales 11,979,517 13,905,962 Less: Discounts and allowances ( 1,094,363 ) ( 1,207,459 ) Net Sales $ 10,885,154 $ 12,698,503 F-20 UNITED-GUARDIAN, INC. (b) Geographic Information Years ended December 31, 2023 2022 United States $ 8,601,205 $ 9,537,124 Other countries 2,283,949 3,161,379 Net Sales $ 10,885,154 $ 12,698,503 (c) Gross Sales to Major Customers Years ended December 31, 2023 2022 Customer A $ 3,464,861 $ 4,284,799 Customer B 2,502,846 2,527,743 Customer C 1,726,753 1,613,597 Customer D 1,490,158 1,553,885 All other customers 2,794,899 3,925,938 Total Gross Sales $ 11,979,517 $ 13,905,962 NOTE H - ACCRUED EXPENSES Accrued expenses on December 31, 2023 and 2022 consist of: 2023 2022 Bonuses $ 187,002 $ 175,496 Distribution fees 407,133 395,536 Payroll and related expenses 96,157 53,475 Company 401(k) contribution 109,000 94,326 Annual report expenses 81,725 68,349 Audit fee 71,000 66,500 Reserve for outdated material returns 247,847 369,154 Sales rebates 132,250 80,926 Other 30,930 18,294 Total accrued expenses $ 1,363,044 $ 1,322,056 NOTE I - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES As of December 31, 2023, the Company had a number of unconverted Guardian Chemical shares that would convert to approximately 447 shares of United-Guardian, Inc. common stock if all of the remaining holders of those Guardian shares converted their Guardian stock to United-Guardian stock. The Company’s transfer agent continues to try to locate the holders of those shares in anticipation of escheating them to the appropriate state jurisdictions. The Company is currently accruing dividends on the 447 shares that have not yet been exchanged or designated for escheatment as of December 31, 2023, and the Company will continue to do so as dividends are declared. F-21 UNITED-GUARDIAN, INC. NOTE J - RELATED PARTY TRANSACTIONS During the years ended December 31, 2023 and 2022, the Company made payments of $ 100,000 and $ 20,000 , respectively, to Ken Globus, the Company’s former President, for consulting services subsequent to his departure from the Company. The Company’s consulting agreement with Ken Globus expires on May 31, 2024. Ken Globus is a director of the Company and currently serves as Chairman of the Board of Directors. In addition, in November 2022, Ken Globus purchased a used vehicle from the Company for $ 37,039 . During the years ended December 31, 2023 and 2022, the Company paid PKF O’Connor Davies $ 20,000 and $ 14,500 , respectively, for accounting and tax services. Lawrence Maietta, a partner at PKF O’Connor Davies, is a director of the Company. NOTE K – SUBSEQUENT EVENTS On October 10, 2023 the Company notified Ashland Specialty Ingredients (“ASI”), one of its marketing and distribution partners, that it was not renewing its Exclusive Distributor Agreement. The Company is currently in negotiations with Ashland on a new contract and believes it will have the new agreement executed before the end of Q2 2024, although there can be no assurance that a new agreement will be executed. In October 2023 the Company experienced a supply disruption at our contract manufacturer’s facility for Renacidin, one of the Company’s pharmaceutical products. The Company has been working very closely with its contract manufacturer to coordinate validation activities and ensure a timely restart of production. As of February 12, 2024, the validation activities have been completed and production has started. On January 30, 2024, the Company’s 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. F-22