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For the transition period from _________________ to _________________

Commission File Number: COMMISSION FILE NUMBER: 1-10526

UNITED-GUARDIAN, INC..

(Exact Name of Registrant as Specified in Its Charter)

230 Marcus Boulevard, Hauppauge, New York 11788

(Address of Principal Executive Offices)

(631) 273-0900

(Registrant’s Telephone Number)

N/A

(Former name, former address, and former fiscal year, if changed since last report)

Cover Page 1 of 2

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large“large accelerated filer”filer”, “accelerated filer”“accelerated filer”, “smaller“smaller reporting company”company”, and “emerging“emerging growth company”company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date:

As of November 1, 2021, the Registrant had issued and outstanding 4,594,319 shares of common stock,Common Stock, $.10 par value $.10 per share

(as of November 1, 2017) ("Common Stock").

UNITED-GUARDIAN, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)BALANCE SHEETS

ASSETS

See Notes to Condensed Financial Statements

Page

UNITED-GUARDIAN, INC.

BALANCE SHEETS

(continued)

LIABILITIES ANDSTOCKHOLDERS’ EQUITY

See Notes to Condensed Financial Statements         

UNITED-GUARDIAN, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

See Notes to Condensed Financial Statements

UNITED-GUARDIAN, INC.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

See Notes to Condensed Financial Statements

UNITED-GUARDIAN, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1.       Nature of Business

United-Guardian, Inc. (the “Company”) is a Delaware corporation that, through its Guardian Laboratories Division,division, conducts research, product development, manufacturing and marketing of cosmetic ingredients, personal and health care products, pharmaceuticals, medical products and proprietary specialty industrial products.

The Company’s research and development department modifies, refines, and expands the uses for existing products for additional uses and markets. It also develops new products using natural and environmentally friendly raw materials, which is important to many of the Company's cosmetic customers.

2.       Basis of Presentation

Interim condensed financial statements of the Company are prepared in accordance with United States Generally Accepted Accounting Principles in the United States of America (“US GAAP”) for interim financial information, pursuant to the requirements for reporting on Form 10-Q10-Q and Regulation S-X. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to such regulations.S-X. In the opinion of management, all adjustments, consisting solely ofincluding normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods have been included. The results of operations for the three and nine months ended September 30, 20172021 (also referred to as the "third quarter of 2021" and the "first nine months of 2021", respectively) are not necessarily indicative of results that ultimately may be achieved for any other interim period or for the year ending December 31, 2017. 2021. The interim unaudited condensed financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K10-K for the year ended December 31, 2016.

2020.

3.        Impact of Coronavirus (COVID-19)

While the coronavirus pandemic (“pandemic”) continues to impact the Company’s operations, the substantial impact the pandemic had on Company sales in 2020 significantly lessened in the firstnine months of 2021. The current impact is coming primarily from supply chain disruptions, which have resulted in increased packaging and shipping costs, and increases in the cost of some raw materials, although it has not significantly affected the ability of the Company to obtain raw materials. It has, however, resulted in some shipping delays due to the shortage of truck drivers. The Company has been able to maintain production throughout the pandemic.

Sales of the Company’s non-pharmaceutical medical products (“medical products”) had also been negatively impacted by the pandemic in 2020, but those impacts have lessened as well in the firstthree quarters of 2021. Sales of the Company’s pharmaceutical products were not impacted by the pandemic in 2020 or in the firstnine months of 2021.

There continues to be some uncertainty in regard to the future impact of the pandemic on the Company’s operations or financial results and as a result it is difficult for the Company to provide an accurate estimate or projection as to what the future impact of the pandemic will be on the Company’s future operations or financial results. The Company does not expect the carrying value of its assets or its liquidity to be impaired by the coronavirus pandemic.

4.        Use of Estimates

In preparing financial statements in conformity with 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimated items include the allowance for bad debts, reserve for inventory obsolescence, accrued distribution fees, outdated material returns, possible impairment of marketable securities, and the allocation of overhead.

The fair values of the Company’s marketable securities are determined in accordance with 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. 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 GAAP, which prioritizes the inputs used in measuring fair value, as follows:5.        Cash and Cash Equivalents

The following available-for-sale securities, which comprise all the Company’s marketable securities, are re-measured to fair value on a recurring basis and are valued using Level 1 inputs, which are quoted prices (unadjusted) for identical assets in active markets:

Proceeds from the sale and redemption of marketable securities amounted to $540,472 for the nine months ended September 30, 2017, which included realized gains of $54,302. Proceeds from the sale and redemption of marketable securities amounted to $1,437,832 for the nine months ended September 30, 2016, which included realized losses of $1,063.

Investment income consisted principally of realized gains and losses, interest income from fixed income mutual funds and dividend income from equity and other mutual funds.

Marketable securities include investments in fixed income and equity mutual funds, which are classified as “available-for-sale” securities and are reported at their fair values. Unrealized gains and losses on “available-for-sale” securities are reported as accumulated other comprehensive income in stockholders’ equity, net of the related tax effects. Investment income is recognized when earned. Realized gains and losses on the sales of investments are determined on a specific identification basis.

2020.

For the nine months ended September 30, 2021, one of the Company’s marketing partners, and three of its distributors, together accounted for 79% of the Company’s sales and 79% of its outstanding accounts receivable at September 30, 2021. During the nine months ended September 30, 2020, the same marketing partner and three distributors together were responsible for 79% of the Company’s sales and 70% of its outstanding accounts receivable at September 30, 2020.

15.     Earnings Per Share

17.     Subsequent Events

The Company has evaluated all subsequent events from the date of the financial statements through the date of this report.  As detailed in Note 3 above, the Covid-19 pandemic is an ongoing event, and as such, the Company is not able to project or quantify the impact of this event on the Company’s future operations and financial results.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plans, objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company. Forward-looking statements may be identified by the use of such words as “believes”, “may”, “will”, “should”, “intends”, “plans”, “estimates”, “anticipates”, or other similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond ourthe Company’s control) could cause actual results to differ materially from those set forth in the forward-looking statements. In addition to those specific risks and uncertainties set forth in the Company's reports currently on file with the SEC, some other factors that may affect the future results of operations of the Company are: the development of products that may be superior to those of the Company; changes in the quality or composition of the Company's products; lack of market acceptance of the Company's products; the Company's ability to develop new products; general economic or industry conditions; changes in intellectual property rights; changes in interest rates; new legislation or regulatory requirements; conditions of the securities markets; the Company's ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; and other economic, competitive, governmental, regulatory and technical factors that may affect the Company's operations, products, services and prices.

Accordingly, results actually achieved may differ materially from those anticipated as a result of such forward-looking statements, and those statements speak only as of the date they are made.

The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

OVERVIEW

The Company is a Delaware corporation that, through its Guardian Laboratories Division,division, conducts research, product development, manufacturing, and marketing of cosmetic ingredients, personal and health care products, pharmaceuticals, non-pharmaceutical medical products, and proprietary specialty industrial products. All of the products that the Company manufactures,markets, with the exception of Renacidin,^®, are produced at its facility in Hauppauge, New York, and are marketed through marketing partners, distributors, wholesalers, direct advertising, mailings, and trade exhibitions. ItsYork. Renacidin, a urological product, is manufactured for the Company by an outside contract manufacturer.

The Company’s most important product line is its LUBRAJEL^®Lubrajel® line of water-based moisturizing and lubricating gels, which are used primarily as ingredients in cosmetic products.products but are also used in medical products, primarily catheter lubricants. These products are marketed worldwide for cosmetic uses by five marketing partners, each handling a different geographic area, with the largest being U.S.-based ASI. The Company’s research and development department is actively working on the development of new products to expand the Company'sCompany’s line of personal care products. Somecosmetic ingredients. Many of the Company’s products have patent protection, and others are produced usinguse proprietary manufacturing processes.processes, and the company relies primarily on trade secret protection to protect its intellectual property.

The Company’s personal care products are purchasedRenacidin and marketed worldwide primarily by six marketing partners, of which U.S.-based Ashland Specialty Ingredients (“ASI”) is the largest, purchasing approximately 34% of the Company’s products during the third quarter of 2017. The Company also sells small quantities of its personal care products directly to a few customers that are not handled by one of its six marketing partners.

Although a significant percentage of ASI’s purchases from the Company are marketed to foreign customers, all sales to ASI are considered U.S. sales for financial reporting purposes, since all ASI orders are shipped to ASI’s warehouses in the U.S. Based on sales information provided to the Company by ASI, in the third quarter of 2017, approximately 76% of ASI’s sales were to customers in foreign countries. Overall, approximately 22% of the Company’s products were sold to end users located outside of the United States, either directly by the Company or by the Company’s other five marketing partners, during the third quarter of 2017.

The Company sells two pharmaceutical products for urological uses. Those productsproduct, Clorpactin®, which is also used primarily in urology, are sold mainlydistributed through full-line drug wholesalers and marketed only in the United States, with distribution handled primarily by the major drugStates. Those wholesalers which in turn sell the products to pharmacies, hospitals, nursing homes, and other long-term care facilities, and to government agencies, primarily the U.S. DepartmentVA. The Company promotes Renacidin through internet advertising as well as a dedicated website. Clorpactin and some of Veterans Affairs.the Company’s other products are marketed through information provided on the Company’s corporate website.

The Company'sCompany’s non-pharmaceutical medical products, (referred to hereinafter as "medical products"), such as its catheter lubricants, as well as its specialty industrial products, are sold directly by the Company to the end usersend-users, or to contract manufacturers utilized by the end users, although theythose end-users. They are also available for salemarketing on a non-exclusive basis by its marketing partners as well. There are three customers for the Company’s medical products that take delivery of their purchases in the U.S. but subsequently ship that product to manufacturing facilities outside the U.S. Since the Company makes those shipments to U.S. locations, sales to those customers are considered domestic sales. In the third quarter of 2017 approximately 37% of the Company’s medical product sales were delivered to U.S. locations for subsequent shipment by the customers to foreign manufacturing facilities, which then produced finished products to be marketed globally.marketing partners.

While the Company does have competition in the marketplace for some of its products, particularly its cosmetic ingredients, some of its pharmaceutical and medical products have some unique characteristics, and do not have direct competitors. However, these products may have indirect competition from other products that are not marketed as direct competitors to the Company’s products but may have similar functionsfunctionality or properties that are similar to the Company’s products.

The Company recognizes revenue when all of the following requirements are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) products are shipped, which is when the performance obligation is satisfied and title and risk of loss pass to the customers, persuasive evidence of a sales arrangement exists,customers; and (c) collections are reasonably assured. An allowance for returns, based on historical experience, is taken as a reduction of sales within the same period the revenue is recognized.

Over the years the Company has been issued many patents and trademarks, and intends, whenever possible,it still maintains several registered trademarks, the two most important of which are “Lubrajel” and “Renacidin.” However, regarding the protection of the Company’s proprietary formulations and manufacturing technology, the Company currently relies primarily on trade secret protection rather than patent protection due to make effortsthe current disclosure requirements needed to obtain patents, the limited protection they afford, and the difficulty and expense of enforcing them globally. However, the Company may, from time to time, seek patent protection when it believes it would be in connection with its product development program. Mostthe Company’s best interest to do so. All of the Company’s previously issued patents that the Company has been issued have expired; however, the Company does not believe that the expiration of those patents has had, or will have, any material effectimpact on its sales, since in recent years protection for the Company’s most important products relyhas been based on trade secrets and proprietary manufacturing methods rather than patent protection.

Critical Accounting PoliciesAs discussed in Note 3 above, while the coronavirus pandemic (“pandemic”) continues to impact the Company’s operations, the substantial impact the pandemic had on Company sales in 2020 significantly lessened in the first nine months of 2021. While the Company believes that sales of its cosmetic ingredients are still being negatively impacted, the sales situation has improved substantially, and the current impact is coming more from increased shipping costs and some higher raw material costs, which could have some impact on the Company’s profit margins in upcoming quarters. It has also been more difficult to ship the Company’s products due to a shortage of truck drivers, which has meant some delays in having orders picked up, even though the Company’s products are available to ship. The shortage of truck drivers is expected to continue into 2022, and the Company is doing what it can to minimize the impact on customers by making customers aware of some longer lead times due to the trucking issues.

Sales of the Company’s non-pharmaceutical medical products (referred to herein as “medical products”) had also been negatively impacted by the pandemic in 2020, but those impacts have lessened as well in the first three quarters of 2021. There continues to be some impact on shipping schedules, with the shipping of some customers’ orders being delayed due to the shortage of truck drivers.

Sales of the Company’s pharmaceutical products were not impacted by the pandemic in 2020 or in the first nine months of 2021. However, the Company is beginning to see a small decrease in gross pharmaceutical sales due the termination of its participation in the Medicaid Drug Rebate Program. Please refer to the pharmaceutical sales section of the MD&A for further discussion.

The pandemic has not significantly affected the ability of the Company to obtain raw materials, but it has made some of those materials more expensive, which could impact the Company’s gross profit margins in the future. The Company has been able to maintain production throughout the pandemic.

There continues to be uncertainty in regard to the future impact of the pandemic on the Company’s operations or financial results. While the impact on the Company’s’ sales lessened considerably in 2021, the Company is still unable to provide an accurate estimate or projection as to what the future impact of the pandemic will be on the Company’s future operations or financial results. The Company does not expect the carrying value of its assets or its liquidity to be impaired by the coronavirus pandemic.

CRITICAL ACCOUNTING POLICIES

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, the discussion and analysis of the Company’s financial condition and results of operations are based on its financial statements, which have been prepared in conformity with US GAAP. The preparation of those financial statements required the Company to make estimates and assumptions that affect the carrying value of assets, liabilities, revenues and expenses reported in those financial statements. Those estimates and assumptions can be subjective and complex, and consequently actual results could differ from those estimates and assumptions. The Company’s most critical accounting policies relate to revenue recognition, concentration of credit risk, investments, inventory, and income taxes. Since December 31, 2016,2020, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

The following discussion and analysis covers material changes in the financial condition of the Company since the year ended December 31, 2016,2020, and a comparison of the results of operations for the threethird quarter of 2021 and 2020 and the first nine months ended September 30, 2017of 2021 and September 30, 2016.2020. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis or Plan of Operation" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2020. All references in this quarterly report to “sales” or “Sales” shall mean Gross Sales.“net sales” unless specifically identified as “gross sales”.

The Company recognizes revenue from sales of its cosmetic ingredients, medical products, and industrial products when all of the following requirements are satisfied: (a) a valid purchase order has been received; (b) products are shipped, which is when the performance obligation is satisfied and title and risk of loss pass to the customers; and (c) future collection of the sale amount is reasonably assured. These products are shipped “Ex-Works” from the Company’s facility in Hauppauge, NY, and it is at this time that risk of loss and responsibility for the shipment passes to the customer. Sales of these products are deemed final, and there is no obligation on the part of the Company to repurchase or allow the return of these goods unless they are defective.

The Company’s pharmaceutical products are shipped via common carrier upon receipt of a valid purchase order, with, in most cases, the Company paying the shipping costs. The Company assumes responsibility for the shipment arriving at its intended destination. Sales of pharmaceutical products are final, and revenue is recognized at the time of shipment. Pharmaceutical products are returnable only at the discretion of the Company unless (a) they are found to be defective; (b) the product is damaged in shipping; or (c) the product is outdated (but not more than one year after their expiration date, which is a return policy which conforms to standard pharmaceutical industry practice). The Company estimates an allowance for outdated material returns based on gross sales of its pharmaceutical products.

RESULTS OF OPERATIONS

Gross Sales

Gross salesSales for the third quarter of 2017 decreased2021 increased by $263,076 (approximately 7%$843,386 (36%) when compared with the third quarter of 2016. Gross salessame period in 2020. Sales for the first nine months of 20172021 increased by $1,954,775 (approximately 24%$1,654,674 (19%) as compared with the corresponding period in 2016.2020. The changesincrease in sales for both the threethird quarter of 2021 and the first nine months ended September 30, 2017of 2021 were attributable to changes in sales of the following product lines:

Personal care products: Cosmetic ingredients:

Third quarter of 2017 sales of the Company’s personal care products increased by $35,273 (approximately 2%) when compared with the third quarter of 2016, primarily due to increases in sales to the Company’s four other marketing partners, in Korea, the United-Kingdom, and Italy, which offset sales declines to the Company’s largest marketing partner, ASI, and as well as to the Company’s marketing partners in France and Switzerland. Sales to ASI in the third quarter decreased by $126,452 (approximately 10%), which the Company believes was due to the timingfour small direct cosmetic ingredient customers, had a net increase of orders. Sales to the Company’s five other marketing partners increased by $169,753 (approximately 53%$45,007 (20%) compared with the third quarter of 2016. The largest sales increase was attributable to the Company’s marketing partner in Korea, whose sales increased by $156,025 (approximately 128%).2020. Sales to the Company’s marketing partnerpartners in the United Kingdom, increased by $11,272 (approximately 17%),Switzerland, and sales to the Company’s marketing partner in Italy increased by $9,518 (approximately 64%). Slightly offsetting those increases was a decrease intotal of $117,448 (112%), while sales of $5,004 (approximately 4%) to the Company’s marketing partner in France and a decreasefour of $2,058 (80%the Company’s small direct cosmetic customers decreased by $72,440 (58%).

Cosmetic ingredient sales for the first nine months of the year to the Company’s four other marketing partner in Switzerland.

Forpartners, as well as to the nine-month period ended September 30, 2017 sales of the Company’s personal care productsfour direct cosmetic customers, increased by $1,745,868 (approximately 48%a net of $219,402 (28%) when compared with the same period in 2016, with sales to ASI increasing by $1,551,820 (approximately 60%). That increase was due primarily to higher sales to ASI in the first and second quarters of 2017 compared with those same quarters in 2016.2020. Nine-month sales to the Company’s five other marketing partners in the UK, France, Switzerland and Italy increased by $201,051 (approximately 19%$240,985 (32%), with increases in Korea, Italy, France, and the United Kingdom slightly offset by a decrease in Switzerland. The nine-month changes in sales were as follows:while sales to the Company’s marketing partner in Korea increased by $145,737 (approximately 42%); sales to the Company’s marketing partner in Italy increased by $31,789 (approximately 66%); sales to the Company’s marketing partner in France increased by $23,718 (approximately 6%); sales to the Company’s marketing partner in the United Kingdom increased by $8,651 (approximately 4%); and sales to the Company’s marketing partner in Switzerlandfour direct cosmetic customers, decreased by $8,844 (55%$21,583 (52%).

The Company’sCompany believes that the increase in sales in Western Europe continue to be negatively impacted by (a) the continuing economic problems in Europe; (b) the strong U.S. dollar relative to the Euro, which has madeof the Company’s products less competitivecosmetic ingredients in Europe was, at least in part, the result of global pandemic conditions improving.

Pharmaceuticals:

Because there are fees, rebates and (c) increased competition. Forallowances associated with sales of the past few yearsCompany’s two pharmaceutical products, Renacidin and Clorpactin, discussion of the Company has been experiencing additional competition from Asian companies that are manufacturing competitiveCompany’s pharmaceutical sales includes references to both gross sales (before fees, rebates and allowances) and net sales (after fees, rebates and allowances). Gross sales of the Company’s pharmaceutical products in Asia and selling them at much lower prices. This has resulted in a loss of some business to these competitive products. As a result, from time to time it has been necessary, and will continue to be necessary, for the Companythree- and nine-month periods ended September 30, 2021 decreased by $92,405 (6%) and $178,459 (4%), respectively, compared with the corresponding periods in 2020. These decreases were due primarily to lower its pricesdecreases of $86,751 (6%) and $232,493 (6%) in specific cases in order to retain or attract customers, and this has impacted its profit margins on those sales. The Company intends to continue to work with its marketing partners to take whatever steps are necessary to try to recover the business it has lost to these lower-priced products, including continuing to reduce prices on a case by case basis, as needed, in order to remain as competitive as possible.

In addition to the above changes in sales, sales allowances increased by $16,765 and $75,218Renacidin for the threethree- and nine-month periods, respectively, ended September 30, 2017,2021. The decrease in both periods was primarily due to the Company having terminated its participation in the Medicaid Drug Rebate Program on December 31, 2020. Gross sales of the Company’s other pharmaceutical product, Clorpactin, decreased by $5,654 (3%) for the three-month period ended September 30, 2021, and increased by $54,034 (12%) for the nine-month period ended September 30, 2021, compared with the corresponding periods in 2020. The Company believes the changes in sales of Clorpactin were most likely due to normal fluctuations in the sales of that product.

The decrease in gross sales for the three- and nine-month periods ended September 30, 2021 was partially offset by a decrease in pharmaceutical related fees, rebates and allowances of $76,567 (22%) and $223,957 (23%), respectively. The decreases in these fees, rebates and allowances were the result of the Company’s termination of its participation in the Medicaid Drug Rebate Program at the end of 2020. Due to the overly burdensome nature of the Medicaid rebates that the Company had to pay under this program, the Company determined that it was no longer profitable for the Company to continue to participate. Accordingly, on October 30, 2020 the Company informed the Centers for Medicare & Medicaid Services (CMS) of its intention to terminate its Medicaid Drug Rebate Agreement and its participation in the Medicaid Program, effective December 31, 2020. As the Company had anticipated, the discontinuation of its participation in this program resulted in the loss of some Renacidin sales, but that loss was more than offset by the elimination of the rebate payments, which resulted in an increase in net income from these sales.

As sales of the Company’s pharmaceutical products fluctuate there is typically a corresponding direct relationship in the related allowances, such as for distribution fees, VA chargebacks, Medicare rebates, sales rebates and discounts, outdated material returns, and Medicaid rebates. For the three- and nine-month periods ended September 30, 2021, these allowances decreased by $74,116 (21%) and $226,932 (24%), respectively, compared with the same periods in 2020. This was primarily the result of the Company’s termination of its participation in the Medicaid Program. Although the Company will no longer be incurring Medicaid-related rebate costs, it will continue to incur costs related to other allowances, including Medicare rebates, distribution fees, chargebacks on VA sales, and outdated material returns.

Medical (non-pharmaceutical) products:

Sales of the Company’s medical products decreased by $173,152 (33%) for the third quarter of 2021, and by $103,025 (6%) for the nine-month period ended September 30, 2021, compared with the same periods in 2020. The decrease in medical product sales for both periods was primarily attributable to the loss of one of the Company’s domestic medical product customers in 2020 due to the reformulation of its product, combined with a decrease in orders from two of the Company’s larger direct medical product customers located in China and India, which was partially the result of shipping delays. The Company believes that the other decreases were related to the impact of the coronavirus pandemic.

Industrial products:

Sales of the Company's industrial products increased by $3,904 (11%) and by $6,136 (6%) for the three and nine months, respectively, ended September 30, 2021, when compared with the corresponding periods in 2016. This2020.The increase in sales for both the three- and nine-month periods was primarily due to increasesan increase in allowances for distribution fees and outdated material returns attributable toorders from one of the Company’s pharmaceuticals.industrial product customers located in the northeastern United States.

Cost of Sales

ForCost of sales as a percentage of sales remained the same for both the third quarter of 2017,2021 and 2020, at 42%. For the first nine months of 2021, cost of sales as a percentage of net sales decreased from 42% in 2020 to approximately 35%, from 46%41% in the third quarter2021.

Operating Expenses

Operating expenses, consisting of 2016,selling and to approximately 42% for the nine-months ended September 30, 2017 compared with 45% for the comparable period in 2016. The decreasesgeneral and administrative expenses, decreased by $34,622 (7%) for the third quarter of 2017 as compared with third quarter of 2016,2021, and by $91,393 (6%) for the first nine months of 2017 as2021, compared with the comparable period in 2016, were primarily due to lower per unit manufacturing costs resulting from the allocation of the Company’s fixed overhead costs over a larger number of production units in the three- and nine-month periods of 2017 compared with the comparablesame periods in 2016. This was due to an increase in demand for the Company’s products in 2017, which resulted in greater production and greater production efficiencies.

Operating Expenses

Operating expenses consist of selling, general and administrative expenses. Operating expenses decreased by $22,144 (approximately 5%) for the third quarter of 2017 compared with the comparable quarter in 2016, and by $72,944 (approximately 5%) for the nine months ended September 30, 2017 compared with the nine months ended September 30, 2016.2020. The decreases in operating expenses for the third quarter and the first nine months of 2017both periods were primarily attributable to decreasesa decrease in payroll and payroll related expenses, and consulting fees.combined with the recognition of a gain on the sale of an asset during the third quarter of 2021. Operating expenses are expected to remain relatively constant.consistent for the remainder of the year.

Research and Development Expenses

Research and development expenses increased by $938$15,906 (14%) for the third quarter of 2021, and by $17,919 (5%) for the first nine months of 2021 compared with the same periods in 2020. The increases for both periods were mainly due to an increase in payroll and payroll related expenses.

Investment Income

Investment income decreased by $185 (less than 1%) for the third quarter of 2017,2021 compared with the third quarter of 2020 and $13,481 (approximately 3%decreased by $7,171 (5%) for the first nine months of 20172021 compared with the comparablesame period in 2020. The decreases in both periods were due to decreased interest income from U.S. Treasury Bills combined with lower dividend income from stock and bond mutual funds compared to the same periods in 2016.2020.

Investment IncomeNet gain on marketable securities

Investment income increasedNet gain on marketable securities decreased by $49,606 (approximately 77%$138,356 (122%) for the third quarter of 20172021 compared with the comparablesame period in 2020. The reason for the decrease was a combination of 1) a decrease in realized gains on the sales of marketable securities during the third quarter of 2016,2021 compared with the same period in 2020 (the Company did not sell any securities during the equivalent three-month period in 2021) and by $49,056 (approximately 26%) for2) in the third quarter of 2020, the market began its recovery after the significant market value decline that occurred in the first and second quarters of 2020 due to the pandemic.

For the first nine months of 20172021, the net gain on marketable securities decreased by $103,413 (72%) compared with the same period in 2020. The primary reason for the decrease was that during the first nine months of 2016. These increases were mainly2020 the Company recognized unrealized gains of $113,914, which represented the upward market adjustment due to gains on salesimproved economic conditions after the significant decline that occurred during the first part of investments in stock and bond mutual funds in 2017.the year due to the pandemic.

Provision for income taxes

The Company's effective income tax rate remainedwas approximately 31.0%21% for all periods presented,the first nine months of 2021 and 2020. The Company’s tax rate is expected to remain consistentat 21% for the current fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

Working capital increased from $12,668,221$9,832,326 at December 31, 20162020 to $13,982,187$11,254,936 at September 30, 2017,2021, an increase of $1,313,966.$1,422,610. The current ratio decreased from 13.18.0 to 1 at December 31, 20162020 to 9.87.6 to 1 at September 30, 2017.2021. The increase in working capital was primarily due to increases in receivables and marketable securities, partially offset by an increase in marketable securities and accounts payable and income taxes payable.receivable. The decrease in the current ratio was primarily due to increasesdecreases in accounts payable andprepaid income taxes payable.and inventory, and an increase in accrued expenses.

The Company believes that its working capital is, and will continue to be, sufficient to support its operating requirements for at least the next twelve months. The Company does not expect to incur any significant capital expenditures for the remainder of 2017.2021.

The Company generated cash from operations of $3,214,348$3,648,744 and $1,666,481$2,921,704 for the nine months ended September 30, 20172021 and September 30, 2016,2020, respectively. The increase in cash from operations was primarily due to an increase in net income.

Cash used in investing activities for the nine-month period ended September 30, 2017 and2021 was $1,343,651. Cash used in investing activities for the nine-month period ended September 30, 20162020 was $ 1,070,104 and $116,090, respectively.$1,155,986. The increase was primarily due to a reductionan increase in the proceeds received from salespurchases of marketable securitiesproperty, plant and equipment, and an increase in the nine months ended September 30, 2017 compared with the nine months ended September 30, 2016.fixed income mutual fund purchases.

Cash used in financing activities was $1,925,066$2,204,616 and $1,603,871$1,928,969 for the nine months ended September 30, 20172021 and September 30, 2016,2020, respectively. The increase was due to an increase in the dividends paid per share from $0.35 per share in 2016 to $0.42 per share in 2017.2020 to $0.48 per share in 2021.

The Company expects to continue to use its cash to make dividend payments, to purchase marketable securities, and to take advantage of other opportunities that may arise that are in the best interest of the Company and its shareholders, should they arise.shareholders.

OFF BALANCE SHEETBALANCE-SHEET ARRANGEMENTS

The Company has no off balance sheetbalance-sheet transactions that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

Item 4. CONTROLS AND PROCEDURES

The Company’s management, including its Principal Executive Officer and Chief Financial Officer, has evaluated the design, operation, and effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the evaluation performed by the Company’s management, including its Principal Executive Officer and Chief Financial Officer, it was determined that, as of the end of the period covered by this quarterly report, the Company’s disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed in the 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 the Company’s management, including its Principal Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosures.

The Company's Principal Executive Officer and Chief Financial Officer have determined that, during the period covered by this quarterly report, there were no changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. They have also concluded that there were no significant changes in the Company’s internal controls after the date of the evaluation.

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

NONE

ITEM 1A.RISK FACTORS

IMPACT OF COVID-19

As a result of the pandemic, global consumer purchases of cosmetic products declined significantly in 2020, which resulted in a significant decline in sales of the Company’s cosmetic ingredients in the last three quarters of 2020. Sales of these products were particularly impacted in China, where prior to the pandemic the Company had significant sales. This resulted in an excess inventory situation in China, which severely impacted sales, and which was not resolved until the end of 2020.

The informationimpact of the pandemic on the Company’s sales significantly lessened in 2021. Sales of its cosmetic ingredients in the first quarter of 2021 were slightly lower than in the first quarter of 2020 because the pandemic didn’t begin to significantly impact sales of the Company’s cosmetic ingredients until the latter part of the second quarter of 2020, and that impact continued into the first quarter of 2021.

With the pandemic beginning to abate, sales in the third quarter of 2021 increased significantly compared with the third quarter of 2020. While it is still too soon to predict what the impact of the pandemic will be on future sales, it is likely that there will continue to be reported under this itemsome impact on sales of the Company’s cosmetic ingredients, but to a lesser degree than in 2020. The current impact of the pandemic is coming primarily from supply chain disruptions, which have resulted in increased packaging and shipping costs, and increases in the cost of some raw materials. Due to the uncertainty surrounding the duration of the pandemic and its impact in the various countries in which the Company does business, it is difficult for the Company to provide an accurate estimate or projection as to what the future impact of the pandemic will be on the Company’s future operations or financial results. Although the pandemic had some impact on sales of some of the Company’s medical products, it has not requiredimpacted sales of smaller reporting companies.its pharmaceutical products.

The Company does not anticipate that the pandemic will affect its ability to obtain raw materials and maintain production, and the Company has multiple sources for many of its raw materials. However, some of the Company’s raw materials have experienced price increases, which could impact the manufacturing cost of some of the Company’s products in the future. The Company may or may not be able to pass along and recoup these price increases, depending on the product. The Company expects to be able to maintain production levels sufficient to ship orders on a timely basis, but the timely shipping of the Company’s products may continue to be impacted by the current shortage of truck drivers.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. MINE SAFETY DISCLOSURES

NONE

ITEM 5. OTHER INFORMATION

NONE

ITEM 6.EXHIBITS

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.