UNITED GUARDIAN INC

(UNAUDITED)

1. Business

United-Guardian, Inc. (“Company”) is a Delaware corporation that, through its Guardian Laboratories division, manufactures, markets and develops specialty cosmetic, personal care and sexual wellness ingredients and a line of healthcare products including pharmaceuticals and medical lubricants. The Company conducts various research and development (“R&D”) activities. The Company’s R&D department primarily develops new and unique specialty cosmetic and sexual wellness ingredients using natural and environmentally friendly raw materials, which is a priority for many of our cosmetic customers. The R&D department also modifies, refines, and expands the uses for existing products, with the goal of further developing the markets that our products are used in. All the products that the Company markets, except for Renacidin®, are produced at our facility in Hauppauge, New York. Renacidin, a urological product, is manufactured for us by an outside contract manufacturer.

2. Basis of Presentation

Interim condensed financial statements of the Company are prepared in accordance with 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-Q and Regulation S-X. In the opinion of management, all adjustments considered necessary for the fair presentation of financial statements for the interim periods have been included. The results of operations for the three months ended March 31, 2026 (also referred to as the “first quarter of 2026”) are not necessarily indicative of results that ultimately may be achieved for any other interim period or for the year ending December 31, 2026. The interim unaudited condensed financial statements and notes thereto should be read in conjunction with the audited condensed financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2025.

3. Segment Information

The Company operates its business underone operating segment, which is also its reportable segment. The Company's chief operating decision maker (“CODM”), who is the President, reviews financial information presented at the consolidated level and decides how to allocate resources based on financial metrics, including net income. The measure of segment assets is reported on the balance sheet as total consolidated assets. The CODM, along with our Board of Directors, use such financial metrics, including net income, to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits or allocate them to other parts of the business, such as working capital needs, mandatory and discretionary capital expenditures or other growth opportunities that may arise that are in our best interest and the best interest of our stockholders.

Net income, other financial metrics and sales forecasts are used to monitor budget versus actual results. The reported segment revenue, segment profit or loss and significant segment expenses are the same as the consolidated results disclosed on the consolidated statements of income.

4. Impact of Global Supply Chain Instability, Inflation and Tariffs

Recent and ongoing geopolitical tensions and conflicts in key oil- and gas-producing regions, including Iran, Venezuela, the Middle East, and Eastern Europe, have created significant uncertainty and volatility in global energy markets. The immediate impact on the Company has primarily been related to an increase in freight costs and raw materials that are dependent on the petrochemical industry. The availability and cost of direct materials, including raw materials and packaging materials, are critical to our operations. Our business, financial condition and results of operations could be adversely affected by developments in these regions.

In addition, during 2025, the United States (“U.S.”) changed its long-standing trade policies and announced significant new tariffs, with certain exceptions, on virtually all imported goods. These actions triggered the negotiation of new trade agreements with certain U.S. trading partners. While these negotiations resulted in the reduction of certain recently imposed tariffs, the average U.S. tariff rate remains at its highest level since the 1930s. In response to the changes in U.S. trade policies, certain U.S. trading partners imposed retaliatory tariffs on U.S. imports. Shifts in tariffs, trade agreements, import/export restrictions, trade sanctions, sector specific trade barriers, and other governmental trade actions, whether enacted by the U.S. or other countries, especially those instituted in the Company's significant markets or markets where its significant customers are located and the associated uncertainty of long-term trade policies, could impact the Company's sales volume, sales prices, and other costs. Changes in trade policies may also cause disruptions to material sourcing and availability, global supply chains and logistics and access to end markets. Additionally, changes in U.S. trade policy and associated responses from trading partners may create shifts in global market dynamics and result in continued global financial market volatility. The impact of these changes in trade policies and the resulting trade and market uncertainty could have a negative impact on the Company’s results of operations. There can be no assurance that in the future, the U.S. or other countries or international trade bodies will not institute new tariffs or more restrictive trade policies or remedies and, as a result, the Company may face additional uncertainty and adverse impact on its business, financial condition and results of operations.

5. 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 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.

6. 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 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 U.S. 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 March 31, 2026 approximately $414,000 exceeded the FDIC limit, compared with $1,300 at December 31, 2025. The Company also invests in certain money market mutual funds that are protected as securities by the Securities Investor Protection Corporation (“SIPC”). At March 31, 2026, cash held in these money market mutual funds was below the SIPC limit. At December 31, 2025, cash held in these money market mutual funds of approximately $502,000 exceeded the SIPC limit.

The following table summarizes our cash and cash equivalents:

7. Accounts Receivable and Reserves

The Company presents financial assets 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.

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 March 31, 2026 and December 31, 2025 the allowance for credit losses related to accounts receivable amounted to $21,270 and $17,169, respectively.

8. 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. Our principal source of revenue is product sales.

Our sales, as reported, are subject to a variety of deductions, some of which are estimated. These deductions are recorded in the same period in which the revenue is recognized. Such deductions, primarily related to the sale of our pharmaceutical products, include chargebacks from the United States Department of Veterans Affairs (“VA”), rebates in connection with our current participation in Medicare programs, distribution fees, discounts, and outdated product returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on sales for a reporting period.

During 2026 and 2025, we participated in various government drug rebate programs related to the sale of Renacidin, our most important pharmaceutical product. These programs include the Veterans Affairs Federal Supply Schedule (“FSS”), and the Medicare Manufacturer Discount Program (“MDP”) (formerly the Medicare Part D Coverage Gap Discount Program (“CGDP”)). These programs require us to sell our product at a discounted price, typically given in the form of a rebate. Our sales, as reported, are net of these rebates, some of which are estimated and are recorded in the same period that the revenue is recognized.

On January 1, 2025, the Centers for Medicare & Medicaid Services (“CMS”) implemented a new Medicare Part D Manufacturer Discount Program (“Discount Program”), which replaced the prior 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 and removal of the cap that was in place that limited the drug manufacturer’s liability. The overall financial impact of this new program will vary depending on the products being reimbursed but it is expected to increase Medicare Part D rebates for drug manufacturers.

The Company’s status as a “specified small manufacturer” by CMS, entitles us to a multi-year phase-in period during which we would pay a lower percentage discount on drugs dispensed to beneficiaries. Based on our current level of sales through the Medicare Part D Program, we would have reduced rebate liabilities beginning in 2025, with rebates gradually increasing each year thereafter, until they reach their full phase-in by 2031. By the end of the phase in period in 2031, these rebate liabilities are expected to exceed the liabilities we have recorded under the CGDP in previous years.

As long as a valid purchase order has been received and future collection of the sale amount is reasonably assured, we recognize revenue from sales of our products when those products are shipped, which is when our performance obligation is satisfied. Our cosmetic products are shipped EXW from our facility in Hauppauge, NY, and the risk of loss and responsibility for the shipment passes to the customer upon shipment. Sales of our medical lubricant products are deemed final upon shipment, and we have no obligation to repurchase or allow the return of these goods unless they are defective. Sales of our pharmaceutical products are final upon shipment unless (a) they are found to be defective; (b) the product is damaged in shipping; (c) the product is too close to its expiration date for the customer to sell; or (d) the product is expired but is not more than one year after its expiration date. These return policies are in conformance with standard pharmaceutical industry practice. We estimate an allowance for outdated material returns based on previous years’ historical returns of our pharmaceutical products.

The Company does not make sales on consignment, and the collection of the proceeds of the sale of any of our 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 March 31, 2026 and December 31, 2025, the Company had an allowance of $200,781 and $194,947, 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. We have not experienced significant fluctuations between estimated allowances and actual activity.

The Company has distribution agreements with certain distributors of our pharmaceutical products that entitle those distributors to distribution and service-related fees. We record distribution fees, and estimates of distribution fees, as offsets to revenue.

Disaggregated revenue by product class is as follows:

The Company’s cosmetic ingredients are marketed worldwide by five distributors, of which U.S.-based Ashland Specialty Ingredients (“ASI”) purchases the largest volume. Approximately 22% of the Company’s total sales were to customers located outside of the United States in the first quarter of 2026, compared with approximately 29% in the first quarter of 2025.

Disaggregated revenue by geographic region is as follows:

*****Since all purchases by ASI are shipped to ASI’s warehouses in the U.S. they are reported as U.S. sales for financial reporting purposes. However, ASI has reported to the Company that in the first quarter of 2026, approximately 71% of ASI’s sales of the Company’s products were to customers in other countries, with China representing approximately 36% of ASI’s sales of the Company’s products. In the first quarter of 2025, approximately 69% of ASI’s sales of the Company’s products were to customers in other countries, with China representing approximately 41% of ASI’s sales of the Company’s products.

9. Accounting for Financial Instruments – Credit Losses

The Company recognizes an allowance for trade receivables to present the net amount expected to be collected as of the balance sheet date in accordance with ASU 2025-05. In July 2025, the Financial Accounting Standard Board (“FASB”) issued ASU 2025-05, which provides (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers. The practical expedient allows an entity to assume that, when estimating expected credit losses, current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. The Company adopted ASU 2025-05 for the year ended December 31, 2025. The adoption did not have a material impact on its financial condition, results of operations or cash flows.

The Company performs ongoing credit evaluations of its customers and adjust credit limits, as determined by a review of current credit information. In addition, the Company continuously monitors collection and payments from customers and maintains an allowance for credit losses based upon historical experience, anticipation of uncollectible accounts receivable and any specific customer collection issues that have been identified. While the Company’s credit losses have historically been low and within expectations, we may not experience the same credit loss rates that have historically been attained in the future. The receivables are highly concentrated in a relatively small number of customers. Therefore, a significant change in the liquidity, financial position, or willingness to pay timely, or at all, of any one of our significant customers would have a significant impact on our results of operations and cash flows.

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. 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.

10. Marketable Securities

The Company’s marketable securities include investments in equity mutual funds and United States Treasury Bills (“U.S. Treasury Bills”) with maturities longer than 3 months. Our marketable equity securities are reported at fair value with the related unrealized and realized gains and losses included in net income. U.S Treasury Bills are recorded at amortized cost. Realized gains or losses on mutual funds are determined on a specific identification basis. We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors such as the length of time and extent to which fair value had been below cost basis, the financial condition of the issuer and our ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value.

The disaggregated net gains and losses on the marketable securities recognized in the statements of income for the three months ended March 31, 2026 and 2025 are as follows:

The fair values of our 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, we utilize the three-tier value hierarchy, as prescribed by US GAAP, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

March 31, 2026 (unaudited)

December 31, 2025 (audited)

Investment income is recognized when earned and consists principally of dividend income from equity mutual funds and interest income on U. S. Treasury Bills and money market funds. Realized gains and losses on sales of investments are determined on a specific identification basis.

Proceeds from the redemption of marketable securities were $5,986,392 in the first quarter of 2026 and included realized gains of $27,948. Proceeds from the redemption of marketable securities were $6,148,493 in the first quarter of 2025, and included realized losses of $1,507.

11. 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. Finished product inventories at March 31, 2026 and December 31, 2025 are stated net of a reserve of $27,000 and $32,000 respectively, for slow-moving and obsolete inventory.

12. Income Taxes

The Company’s tax provision is based on its estimated annual effective tax rate. We continue to fully recognize our tax benefits, and as of March 31, 2026 and December 31, 2025, we didnot have any unrecognized tax benefits. Our provision for income taxes for the three months ended March 31, 2026 and 2025 comprises the following:

13. 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 that is deferred by the employee. Employees become fully vested in employer matching contributions immediately.

The Company can also elect to make 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. Employees become vested in the discretionary contributions as follows:20% aftertwo years of employment, and 20% for each year of employment thereafter until the employee becomes fully vested aftersix years of employment. The Company accrued $20,000 in contributions to the DC Plan for the three months ended March 31, 2026 and $28,750 for the three months ended March 31, 2025. In the first quarter of 2026, there were no discretionary contributions made to the DC Plan. This was due to the Company’s Board of Directors electing not to fund a discretionary contribution for the year ended December 31, 2025 based on reduced sales and earnings. In the first quarter of 2025, the Company made discretionary contributions of $115,000 to the DC Plan. This payment represented the Company’s 2024 accrued discretionary contributions.

14. Other Information

Accrued expenses:

15. Recent Accounting Pronouncements

In July 2025, the FASB issued ASU 2025-05, which provides (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606, Revenue from Contracts with Customers. The practical expedient allows an entity to assume that, when estimating expected credit losses, current conditions as of the balance sheet date remain unchanged for the remaining life of the asset. The accounting policy election permits nonpublic entities that elect the practical expedient to also consider collection activity occurring after the balance sheet date when estimating expected credit losses. The standard is effective for fiscal years beginning after December 15, 2025, and for interim periods within those annual reporting periods. Early adoption is permitted. The Company adopted ASU 2025-05 for the year ended December 31, 2025. The adoption did not have a material impact on its financial condition, results of operations or cash flows.

On November 4, 2024, the FASB issued ASU 2024-03 “Disaggregation of Income Statement Expenses” (“DISE”). This guidance requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. Subsequently issued ASU 2025-01, clarified the effective date of this standard. This guidance is effective for annual reporting periods beginning after December 15, 2026, and for interim periods, within annual reporting periods beginning after December 15, 2027.

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. On January 1, 2025, the Company implemented this standard and applied the guidance under the new standard to include additional disclosures in this Form 10-K for the year ended December 31, 2025.

16. Concentration of Credit Risk

Customer concentration: Accounts receivable potentially exposes the Company to concentrations of credit risk. The Company monitors the amount of credit it allows each of its customers, using the customer’s prior payment history to determine how much credit to allow or whether any credit should be given at all. It is the Company’s policy to discontinue shipments to any customer that is substantially past due on its payments. The Company sometimes requires payment in advance from customers whose payment record is questionable. As a result of its monitoring of the outstanding credit allowed for each customer, as well as the fact that the majority of the Company’s sales are to customers whose satisfactory credit and payment record has been established over a long period, the Company believes that its credit risk from accounts receivable has been reduced.

For the three months ended March 31, 2026, three of the Company’s pharmaceutical distributors andone of its cosmetic ingredient distributors collectively accounted for 75% of the Company’s gross sales and 75% of its outstanding accounts receivable. During the three months ended March 31, 2025, the same three pharmaceutical distributors and cosmetic ingredient distributor were together responsible for a total of approximately 67% of the Company’s gross sales. They also accounted for 67% of the Company’s outstanding accounts receivable at March 31, 2025.

17. 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. During the first quarter of 2026, the Company hadthree major raw material vendors that collectively accounted for approximately 83% of the raw material purchases by the Company. During the first quarter of 2025, the Company hadthree major raw material vendors that collectively accounted for approximately 78% of the raw material purchases by the Company. 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.

18. Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

Basic and diluted earnings per share amounted to $0.18 and $0.12 for the three months ended March 31, 2026 and 2025, respectively.

19. Related Party Transactions

For the quarters ended March 31, 2026 and 2025, the Company paid PKF O’Connor Davies (“PKF”) $9,833 and $4,000 respectively, for accounting and tax services. Lawrence Maietta, a former partner at PKF, is a director of the Company and is currently serving as a senior consultant at PKF.

20. Dividends

On January 26, 2026, the Company’s Board of Directors declared a cash dividend of $0.25 per share, which was paid on February 17, 2026, to all holders of record as of February 9, 2026. During the first quarter of 2026, the Company declared a total of $1,148,580 in dividends, of which $1,148,536 was paid. The balance of $44 is payable to stockholders whose old Guardian Chemical shares have not yet been exchanged to United-Guardian, Inc. shares or are pending escheatment. In addition, during the quarter ended March 31, 2026, the Company made payments of $1,356 in dividends in arrears to shareholders who had either converted their Guardian Chemical shares to United-Guardian, Inc. shares or whose shares had been escheated.

On January 27, 2025, the Company’s Board of Directors declared a cash dividend of $0.35 per share, which was paid on February 18, 2025, to all holders of record as of February 10, 2025. During the first quarter of 2025, the Company declared a total of $1,608,012 in dividends, of which $1,607,893 was paid. The balance of $119 is payable to stockholders whose old Guardian Chemical shares have not yet been exchanged to United-Guardian, Inc. shares or are pending escheatment.

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