UG United-Guardian, Inc.

Management Discussion

• Net sales for the first quarter of 2020 increased by $142,596 (approximately 4%) as compared with the first quarter of 2019. The increase in sales for the three-month period ended March 31, 2020 was primarily attributable to an increase in sales of the Company’s pharmaceutical products and industrial products, which was partially offset by decreased sales of the Company’s medical products. Sales of the Company’s cosmetic ingredients did not materially change compared with the first quarter of 2019. The changes in the sales of the products in the Company’s different products lines were as follows:
• The increases in cosmetic ingredients sales were partially offset by a decrease in sales to the Company’s three other marketing partners in Europe. Sales to the Company’s marketing partners in the UK, Italy and Switzerland decreased by a total of $50,349 (approximately 35%) compared with the first quarter of 2019. In addition, during the first quarter of 2019, the Company had sales to its former marketing partner in Korea of $13,979. The Company is no longer working with that former marketing partner, and has appointed ASI its marketing partner in Korea. In late 2019, the Company began transitioning the Korean business to ASI. In addition to the increases and decreases in sales attributable to the Company’s European marketing partners, there was an increase of $1,270 in direct sales to two cosmetic ingredient customers in the United States during the first quarter of 2020.
• The sales fluctuations to the Company’s European marketing partners are the result of both the timing of customer orders as well as continuing competition from companies selling competitive products at lower prices, particularly a number of Asian manufacturers. This has resulted in a loss of some business in Europe to these less expensive products. As a result, from time to time the Company has adjusted its prices in order to retain or attract customers and be more competitive with some of the lower-priced products. Although there has been some impact on the Company’s profit margins on those sales, to date this impact has not been significant. The Company intends to continue to aggressively compete with these products whenever possible.