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UNITED GUARDIAN INC - Quarter Report: 2008 June (Form 10-Q)

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                For the quarterly period ended June 30, 2008

¨ TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                For the transition period from _________ to _________

 

Commission File Number: 1-10526

UNITED-GUARDIAN, INC.
(Exact Name of Registrant as Specified in Its Charter)

                                        Delaware                                                                                                                                11-1719724                  
                      
(State or Other Jurisdiction of                                                                                            (I.R.S. Employer Identification No.)
                     Incorporation or Organization)

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)

     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 past 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 þ  No ¨

 


 

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

              Large accelerated filer   ¨
              Non-accelerated filer   ¨ (Do not check if a smaller reporting company) 
              Accelerated filer   ¨  
              Smaller reporting company   þ 

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

                                                                                                     Yes ¨      No þ


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

4,946,439 shares of common stock, par value $.10 per share
(as of August 1, 2008)

 

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Part I. FINANCIAL INFORMATION   
 
         Item 1 -    Financial Statements   
 

                          Consolidated Statements of Income - Three and Six Months ended June 

 
                               30, 2008 and 2007 (unaudited)  2 
 
                          Consolidated Balance Sheets – June 30, 2008 (unaudited) and   
                               December 31, 2007  3-4 
 
                          Consolidated Statements of Cash Flows – Six months ended June 30,   
                               2008 and 2007 (unaudited)  5 
 
                          Notes to (unaudited) Consolidated Financial Statements  6-13 
 
         Item 2 -    Management's Discussion and Analysis of Financial Condition   
         and Results of Operations  13-18 
 
         Item 3 -    Quantitative and Qualitative Disclosures About Market Risk  18 
 
         Item 4T - Controls and Procedures  18-19 

 

 

Part II. OTHER INFORMATION   
 
         Item 1 -    Legal Proceedings  19 
 
         Item 1A-  Risk Factors  19 
 
         Item 2 -    Unregistered Sales of Equity Securities and Use of Proceeds  19 
 
         Item 3 -    Defaults Upon Senior Securities  19 
 
         Item 4 -    Submission of Matters to a Vote of Security Holders  19 
 
         Item 5 -    Other Information  19 
 
         Item 6 -    Exhibits and Reports On Form 8-K  20 

 

 

Signatures    20 
 
                                                                     Page 1 of 20   


Part I. FINANCIAL INFORMATION
 
ITEM 1. Financial Statements                       
 
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
                    SIX MONTHS ENDED                THREE MONTHS ENDED
                              JUNE 30,                             JUNE 30,
            2008             2007                2008            2007
Revenue from continuing operations:                     
           Net sales  $ 6,002,238   $ 6,760,706   $ 2,971,039   $ 2,770,056 
Costs and expenses:                       
           Cost of sales    2,537,179     2,793,971     1,299,996     1,141,987 
           Operating expenses    1,351,632     1,333,144     692,320     679,908 
    3,888,811     4,127,115     1,992,316     1,821,895 
                   Operating Income from                       
                         continuing operations    2,113,427     2,633,591     978,723     948,161 
Other income (expense):                       
           Investment income    248,774     285,436     120,498     160,043 
           (Loss) gain on sale of equipment    (7,763 )    5,000     --     5,000 
           Other      (1,375 )           (42 )      (1,426 )             -- 
    239,636     290,394     119,072     165,043 
                   Income from continuing operations                       
                       before income taxes    2,353,063     2,923,985     1,097,795     1,113,204 
Provision for income taxes    777,500     1,039,600     361,500     389,639 
                   Income from continuing                       
                         operations    1,575,563     1,884,385     736,295     723,565 
                   Income from discontinued                       
                         operations, net of income tax             --         10,930              --      11,705 
                                         Net Income  $ 1,575,563   $ 1,895,315   $ 736,295   $ 735,270 
                           Earnings per common share                       
                                 (Basic and Diluted):                       
                                     Continuing operations   $ 0.32   $ 0.38   $ 0.15   $ 0.15 
                                     Discontinued operations               --                --                 --                 -- 
                                         Total—Basic and diluted  $        0.32    $        0.38    $         0.15    $         0.15 
Weighted average shares - basic    4,946,439     4,943,422     4.946,439     4,944,547 
Weighted average shares - diluted    4,946,439     4,945,382     4,946,439     4,945,877 

See notes to consolidated financial statements

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UNITED-GUARDIAN, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS          JUNE 30,                           DECEMBER 31,
             2008           2007 
         (UNAUDITED)     
Current assets:         
         Cash and cash equivalents  $ 3,294,189  $ 4,555,388   
         Temporary investments    347,317    555,829 
         Marketable securities    7,406,214    7,465,419 
         Accounts receivable, net of allowance for doubtful         
                   accounts of $23,727 at June 30, 2008 and         
                   $30,000 at December 31, 2007, respectively    1,681,912    1,278,386 
         Inventories (net)    1,384,662    1,188,222 
         Prepaid expenses and other current assets    387,304    427,712 
         Deferred income taxes    222,970    222,970 
         Assets of discontinued operations                 --         64,619 
                                       Total current assets    14,724,568    15,758,545 
Property, plant and equipment:         
         Land    69,000    69,000 
         Factory equipment and fixtures    3,277,528    3,233,621 
         Building and improvements    2,357,099    2,335,975 
         Waste disposal plant      133,532      133,532 
    5,837,159    5,772,128 
         Less: Accumulated depreciation    4,892,518    4,818,731 
       944,641      953,397 
Other assets         
       Other    231,399    148,430 
       Pension asset        273,652       174,096 
                                       Total other assets        505,051       322,526 
                                                           TOTAL ASSETS  $ 16,174,260  $ 17,034,468 

 

See notes to consolidated financial statements

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UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS


 

LIABILITIES AND STOCKHOLDERS’ EQUITY              JUNE 30,       DECEMBER 31,
                   2008                 2007  
Current liabilities             (UNAUDITED)      
             
Dividends payable  $ --- $ 1,385,003
Accounts payable    219,485     123,290  
Current loans payable    7,988     7,988  
Accrued expenses    1,116,511     794,186  
Liabilities of discontinued operations               --     47,386  
                             Total current liabilities    1,343,984     2,357,853  
Loans payable    2,663     6,657  
Deferred income taxes    111,347     139,862  
Total long term liabilities    114,010     146,519  
Stockholders’ equity:             
             Common stock $.10 par value, authorized,             
                  10,000,000 shares; 5,008,639             
                  shares issued, and 4,946,439 shares             
                  outstanding    500,864     500,864  
             Capital in excess of par value    3,819,480     3,819,480  
             Accumulated other comprehensive loss    (173,872 )    (120,018 ) 
             Retained earnings    10,929,424     10,689,400  
             Treasury stock, at cost; 62,200 shares    (359,630 )    (359,630 ) 
Total stockholders’ equity    14,716,266     14,530,096  
TOTAL LIABILITIES AND STOCKHOLDERS’             
                        EQUITY  $ 16,174,260 $ 17,034,468

 

See notes to consolidated financial statements

Page 4 of 20


UNITED-GUARDIAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

                         SIX MONTHS ENDED  
                                       June 30,  
              2008                 2007  
Cash flows from operating activities:             
               Income from continuing operations  $ 1,575,563 $ 1,884,385
               Adjustments to reconcile net income to net cash             
                          provided by operating activities:             
                                   Depreciation and amortization    110,092     103,367  
                                   Realized gain on sales of marketable securities    (51 )    --  
                                   Income from discontinued operations    --     10,930  
                                   Net cash provided by (used in) discontinued             
                                        operations    17,233     (28,808 ) 
                                   Loss (gain) on sale of equipment    7,763     (5,000 ) 
                                   Provision for bad debts    (6,273 )    --  
                                   Increase (decrease) in cash resulting from             
                                        changes in operating assets and liabilities:             
                                              Accounts receivable    (397,253 )    189,965  
                                              Inventories    (196,440 )    640,011  
                                              Prepaid expenses and other current             
                                                     and non-current assets    (338,510 )    (64,113 ) 
                                              Accounts payable    96,195     (61,717 ) 
                                              Accrued pension costs    (99,556 )    (30,315 ) 
                                              Accrued expenses and taxes payable    592,563     368,627  
                           Net cash provided by operating activities    1,361,326     3,007,332  
Cash flows from investing activities:             
               Acquisition of property, plant and equipment    (91,376 )    (204,307 ) 
               Proceeds from sale of equipment    7,988     5,000  
               Net change in temporary investments    208,512     (13,844 ) 
               Proceeds from sale of marketable securities    600,000     -  
               Purchase of marketable securities    (623,113 )    (117,957 ) 
                           Net cash provided by (used in)             
                                   investing activities    102,011     (331,108 ) 
Cash flows from financing activities:             
               Payment of long term debt    (3,994 )    (3,994 ) 
               Proceeds from exercise of stock options    --     14,157  
               Dividends paid    (2,720,542 )    (2,422,755 ) 
      Net cash used in financing activities   (2,724,536 )    (2,412,592 ) 
Net (decrease) increase in cash and cash equivalents    (1,261,199 )    263,632  
Cash and cash equivalents at beginning of period    4,555,388     3,027,486  
Cash and cash equivalents at end of period  $ 3,294,189 $ 3,291,118

 

See notes to consolidated financial statements

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UNITED-GUARDIAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      Principles of Consolidation
 
  The consolidated financial statements include the accounts of the Company and its wholly- owned subsidiary, Eastern Chemical Corporation (“Eastern”). Significant intercompany transactions have been eliminated. Substantially all of Eastern’s assets were sold in December 2007 (see Note 10).
 
2.      Basis of Presentation
 
  In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of June 30, 2008 and the results of operations for the three and six months ended June 30, 2008 and 2007. The accounting policies followed by the Company are set forth in the Company's financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2007.
 
  The results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year.
 
3.      Stock-Based Compensation
 
  At June 30, 2008, the Company had a stock-based compensation plan for its employees and Directors, which is more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.
 
  The Company follows the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 123R, which requires that the fair value of all share-based payments to employees, including grants of employee stock options, be recognized as expense in the financial statements.
 
  As of June 30, 2008 the Company had no share-based awards outstanding and exercisable and did not grant any options during the six months ended June 30, 2008.
 
  As of June 30, 2008 there was no remaining unrecognized compensation cost related to the non-vested share-based compensation arrangements granted under the Company's plans.
 
  The Company did not record any compensation expense under the provisions of FAS 123R during the six- and three-month periods ended June 30, 2008 and 2007.
 
  The Company received proceeds of $14,157 from the exercise of options for a total of 4,300 shares that were exercised during the six months ended June 30, 2007. The intrinsic value of those shares was $40,217. The company did not receive any proceeds from the exercise of options during the six months ended June 30, 2008.
 

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4.      Recent Accounting Pronouncements
 
  Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB delayed the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Management has determined that the adoption of SFAS 157 did not have a material effect on the Company’s consolidated financial statements.
 
  Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statement 115” (“SFAS 159”). This statement provides companies with an option to report selected financial assets and liabilities at fair value. As of June 30, 2008, the Company has not elected to use the fair value option allowed by SFAS 159. Management has determined that the adoption of SFAS 159 would not have a material effect on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures.
 
  In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations” (“SFAS 141 (R)”). The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer's income tax valuation allowance. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect SFAS 141(R) to have a significant impact on the Company’s financial position.
 
  In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders' equity, and the elimination of "minority interest" accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises the accounting for both increases and decreases in a parent's controlling ownership interest. SFAS 160 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect the adoption of SFAS 160 to have a significant impact on the Company’s financial position.
 
5.      Investments
 
  Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), for assets and liabilities measured at fair value on a recurring basis. SFAS 157 accomplishes the following key objectives:
 
 
  • Defines fair value as the price 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;
     
     
  • Establishes a three-level hierarchy ("Valuation Hierarchy") for fair value measurements;
     

    Page 7 of 20


    • Requires consideration of the Company's creditworthiness when valuing liabilities; and
    • Expands disclosures about instruments measured at fair value.

    The Valuation Hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the Valuation Hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of the Valuation Hierarchy and the distribution of the Company's financial assets within it are 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 following available-for-sale securities are re-measured to fair value on a recurring basis and are valued using level 1 inputs and the market approach as defined by SFAS 157:

                  Unrealized  
    June 30, 2008               Cost         Fair Value      Gain/(Loss)  
    Available for Sale:               
             U.S. Treasury and agencies               
                 Mature within 1 year  $ 950,393  $ 951,882  $ 1,489  
                 Mature 1-5 years    1,701,024    1,734,656    33,632  
                     Total US Treasury and agencies  $ 2,651,417  $ 2,686,538  $ 35,121  
             Fixed income mutual funds    4,574,017    4,485,639    (88,378 ) 
             Equity and other mutual funds    237,834    234,037    (3,797 ) 
      $ 7,463,268  $ 7,406,214  $ (57,054 ) 
     
     
                    Unrealized  
    December 31, 2007                 Cost         Fair Value     Gain/(Loss)  
    Available for Sale:               
             U.S. Treasury and agencies               
                 Mature within 1 year  $  949,354  $ 960,329  $ 10,975  
                 Mature 1-5 years    1,803,298    1,835,253    31,955  
                       Total US Treasury and agencies  $  2,752,652  $ 2,795,582  $ 42,930  
             Fixed income mutual funds    4,452,052    4,404,080    (47,972 ) 
             Equity and other mutual funds    235,399    265,757    30,358  
      $  7,440,103  $ 7,465,419  $ 25,316  

    In addition, the Company holds temporary investments, which consist of one-year certificates of deposit, which totaled $347,317 as of June 30, 2008 and $555,829 as of December 31, 2007.

    Page 8 of 20


    6 .  Inventories - Net         
                   June 30,        December 31,
                      2008               2007 
        Inventories consist of the following:        
                 Raw materials and work in process $ 396,010  $  359,730 
                 Finished products    988,652    828,492 
          $ 1,384,662  $  1,188,222 

      As of June 30, 2008 and December 31, 2007 the Company had reserves of $39,000 for slow moving and obsolete inventory.
     
    7.      Supplemental Financial Statement Information
     
      For purposes of the Statement of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
     
      Cash payments for taxes were $725,300 and $996,855 for the six months ended June 30, 2008 and 2007, respectively. No payments were made for interest during these periods.
     
      The company paid $2,720,542 and $2,422,755 in dividends for the six months ended June 30, 2008 and 2007, respectively.
     
      Research and development expenses amounted to $182,369 and $187,262 for the six months ended June 30, 2008 and June 30, 2007, respectively, and are included in operating expenses.
     
    8.      Line of Credit
     
      The Company had a line of credit agreement with JPMorgan Chase Bank for borrowings of up to $2,000,000 at an interest rate of 1.0% below the Prime Rate, which expired June 30, 2008. The Company is in the process of renewing that line for another one-year term. As of June 30, 2008, the Company had no outstanding balance on this credit line.
     
    9.      Income Taxes
     
      The Company’s tax provision is based on its estimated annual effective tax rate.
     
      The Company follows the provisions of FIN 48. The Company continues to fully recognize its tax benefits, which are offset by a valuation allowance to the extent that it is more likely than not that the deferred tax assets will not be realized. As of December 31, 2007 and June 30, 2008, the Company did not have any unrecognized tax benefits.
     
      The Company files consolidated Federal income tax returns in the U.S., and separate income tax returns in New York State. The Company is subject to examination by the Internal Revenue Service for years 2005 through 2007 and by New York State for years 2004 through 2007.
     
      The Company's policy is to recognize interest and penalties in Other Expense.
     
    10.      Comprehensive Income
     
      The components of comprehensive income are as follows:
     

    Page 9 of 20


                            Six Months Ended 
                               June 30,
                              Six Months Ended
                                 June 30,
     
                    2008                2007                 2008                  2007  
    Net income  $ 1,575,563   $ 1,895,315   $ 736,295   $ 735,270  
    Other comprehensive income                         
    Unrealized (loss) on marketable securities                         
           during period    (82,369 )    (61,697 )    (123,977 )    (88,888 ) 
    Income tax benefit related                         
           to other comprehensive income    (28,515 )    (23,000 )    (42,937 )    (33,100 ) 
    Other comprehensive income, net of                         
           tax    (53,854 )    (38,697 )    (81,040 )    (55,788 ) 
    Comprehensive income net of tax  $ 1,521,709   $ 1,856,618   $ 655,255   $ 679,482  


    Accumulated other comprehensive income comprises unrealized gains and losses on marketable securities and liability for pension benefit net of the related tax effect.

    11.      Discontinued Operations
     
      On December 11, 2007 the Company completed the sale of substantially all of the assets of its Eastern Chemical Corporation (“Eastern”) subsidiary. The assets of Eastern were sold for $266,759, which resulted in a gain during 2007 of $84,361 (net of taxes of $45,396). As a result of the sale, Eastern is classified as discontinued operations for all periods presented.
     
      The table below sets forth the results of operations of Eastern. A portion of the Company’s overhead was previously allocated to Eastern in determining segment information in previous financial statements. The results below do not include any allocated or common overhead expenses. The Company does not expect to incur additional losses associated with Eastern.
     
      The results of operations of Eastern for the six and three months ended June 30, 2007, and the financial position as of June 30, 2008 and December 31, 2007, were as follows:
     
                 Six months ended      Three months ended
                      June 30, 2007              June 30, 2007
    Results of Operations:             
             Revenue  $ 484,227   $ 247,451  
             Less:             
                 Cost of goods sold    (320,324 )    (159,282 ) 
                 General and administrative    (146,473 )    (69,503 ) 
             Income before income taxes    17,430     18,666  
             Income tax    (6,500 )    (6,961 ) 
             Income from discontinued operations  $ 10,930   $ 11,705  

    Page 10 of 20


                June 30,    December 31,
                   2008            2007
    Financial position:           
             Net current assets:           
                     Current assets  $ --  $ 64,619  
                     Current liabilities        (47,386 ) 
                                 Net current assets (liabilities)           
                                     from discontinued operations  $         --  $ 17,233  

    12.      Earnings Per Share
     
      The following table sets forth the computation of basic and diluted earnings per share for the six and three months ended June 30, 2008 and 2007:
     
                       Six months ended                Three months ended 
                              June 30,                        June 30,
                   2008           2007            2008         2007 
    Numerator:                 
             Income from continuing operations  $ 1,575,563  $ 1,884,385  $ 736,295  $ 723,565 
             Income from discontinued operations                --    10,930             --    11,705 
                             Net income  $ 1,575,563  $ 1,895,315  $ 736,295  $ 735,270 
    Denominator:                 
             Denominator for basic earnings per                 
                     share (weighted average shares)    4,946,439    4,943,422    4,946,439    4,944,547 
             Effect of dilutive securities:                 
                     Employee stock options                --    1,960               --    1,330 
    Denominator for diluted earnings per share                 
           (adjusted weighted-average shares) and                 
             assumed conversions    4,946,439    4,945,382    4,946,439    4,945,877 
    Basic and diluted earnings per share:                 
           Continuing operations  $ 0.32  $ 0.38  $ 0.15  $ 0.15 
           Discontinued operations                 --               --                --              -- 
    Total—Basic and diluted  $          0.32  $        0.38  $        0.15  $      0.15 

    13.      Defined Benefit Pension Plan
     
      The Company sponsors a non-contributory defined benefit plan (“Plan”) for its employees and adopted FAS 158 effective December 31, 2006. A measurement period from October 1, 2006 to October 1, 2007 has been used for the year ended December 31, 2007. Due to curtailment of the Plan at December 31, 2007, the Company reported the effect of the curtailment through December 31, 2007. The following table sets forth the components of the projected net periodic benefit costs for the year ending December 31, 2008 and the actual net periodic benefit cost for the year ended December 31, 2007.
     

    Page 11 of 20


                  2008               2007  
              (projected)      
    Service cost – benefit earned  $ ---   $ 126,132  
    Interest cost – projected benefit obligation    141,221     144,358  
    Expected return on plan assets    (185,789 )    (137,632 ) 
    Amortization of net loss    --     49,051  
    Effects of special events    --     24,537  
    Amortization of prior service costs            --        7,461  
      $ (44,568 )  $ 213,907  
    Effect of curtailment of the Plan    --     (11,112 ) 
    Net periodic benefit costs  $ (44,568 )  $ 202,795  

      The Company made cash contributions totaling $77,272 and $125,000 to the Plan during the six-month periods ended June 30, 2008 and 2007, respectively. The Company recorded income of $22,284 for the six months ended June 30, 2008 and expenses for net periodic benefit costs of $94,685 for the six months ended June 30, 2007.
     
      As of December 31, 2007 the Company froze future benefit accruals to the Plan while it investigated the advisability of replacing the Plan with a defined contribution plan, to be coordinated with, and be part of, the Company’s 401(k) plan. The Company has accrued $100,000 for the six months ended June 30, 2008 for the proposed new defined contribution plan. On February 19, 2008, the Company decided to terminate the Plan, subject to regulatory approval, and has begun taking the steps necessary to do so. The Company expects to obtain regulatory approval in 2009.
     
      Upon termination of the Plan, non-vested benefits will become fully vested, and the effects of future contribution levels will cease to be an obligation. Any resulting gain is first offset against an existing net loss included in accumulated other comprehensive income.
     
      Under FASB Statement No. 88, “Employers’ Accounting for Settlements and Contributions of Defined Benefit Pension Plans and for Termination Benefits”, if the net effect of a termination is a gain, the gain is to be recognized when the termination occurs, which would be the date the employees are terminated or the date the Plan is terminated.
     
    14.      Geographic and Other Information
     
      The Company operates in one business segment and serves several end markets.
     
      (a) Gross Revenues
     
                            Six months ended                   Three months ended 
                                    June 30,                             June 30, 
    End Markets Served               2008               2007             2008               2007 
    Personal care  $ 3,803,886  $ 4,427,143  $ 1,851,903  $ 2,135,642 
    Pharmaceuticals    1,245,862    1,533,326    534,161    289,679 
    Medical    1,014,499    891,195    614,457    370,999 
    Industrial    51,686    58,515    22,061    21,490 
        6,115,933    6,910,179    3,022,582    2,817,810 
           

     

     

           
                                                                                                                         Page 12 of 20 

                  Less net discounts 
                          and allowances    (113,695 )    (149,473 )    (51,543 )  (47,754 ) 
    $ 6,002,238 $ 6.760,706 $ 2,971,039 $ 2,770,056
    (b) Geographic Information

          Six months ended June 30,

                                   2008                                                          2007                   
    Long-Lived Long Lived
    Revenues Assets Revenues Assets
               United States  $ 2,632,576 $ 944,641 $ 2,853,342 $ 949,733
               France  743,173 --- 704,673 ---
               Other countries 2,626,489          --- 3,202,691     ---
    $ 6,002,238 $ 944,641 $ 6,760,706 $ 949,733

    (c) Major Customers (revenues)         
                                 Six months ended 
                                         June 30, 
                      2008                2007 
                     Customer A  $ 2,575,622  $          3,057,229 
                     Customer B    659,208    557,001 
                     All other customers    2,767,408    3,146,476 
      $ 6,002,238  $ 6,760,706 

    At June 30, 2008 customers A and B represented 48.9% and 11.6%, respectively, of total accounts receivable. At June 30, 2007 customers A and B represented 35.3% and 14.2%, respectively, of total accounts receivable.

    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," or "anticipates" or other similar expressions. Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our 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

    Page 13 of 20


    develop new products; general economic or industry conditions; 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 conducts research, product development, manufacturing and marketing of cosmetic ingredients, personal and health care products, pharmaceuticals, and specialty industrial products. All of the products that the Company manufactures are produced at its facility in Hauppauge, New York, and are marketed through marketing partners, distributors, wholesalers, direct advertising, mailings, and trade exhibitions. Its most important personal care product line is its LUBRAJEL® line of water-based moisturizing and lubricating gels. It also sells two pharmaceutical products for urological uses. There are also indirect sales to the Veteran's Administration and other government agencies in the United States, and to some hospitals and physicians.

    The Company’s pharmaceutical products are distributed primarily in the United States. Its personal care products are marketed worldwide primarily by its marketing partners, the largest of which is International Specialty Products Inc. ("ISP"). Approximately one-half of the Company's personal care products are sold to foreign customers, either directly or through its marketing partners.

    While the Company does have competition in the marketplace for some of its products, many of its products are either unique in their field or have some unique characteristics, and therefore are not in direct competition with the products of other pharmaceutical, specialty chemical, or health care companies. Many of the Company’s products are manufactured using patented or proprietary processes. The Company’s research and development department is actively working on the development of new products to expand the Company's line of personal care and performance products.

    The Company has been issued many patents and trademarks, and intends whenever possible to make efforts to obtain patents in connection with its product development program.

    CRITICAL ACCOUNTING POLICIES

    As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 the discussion and analysis of the Company’s financial condition and results of operations are based on consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of those financial statements required us to make estimates and assumptions that affect the amount 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

    Page 14 of 20


    revenue recognition, concentration of credit risk, inventory, pension costs, patents, and income taxes. Since December 31, 2007, 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, 2007, and a comparison of the results of operations for the six and three months ended June 30, 2008 and June 30, 2007. 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, 2007.

    RESULTS OF OPERATIONS

    Revenue

    For the six-month period ended June 30, 2008 revenue decreased $758,468 (11.2%) as compared with the comparable period in 2007 while sales for the three-month period ended June 30, 2008 increased $200,983 (7.3%) as compared with the three-month period ended June 30, 2007. The changes in revenue for both the six- and three-month periods ended June 30, 2008 were principally attributable to changes in sales volumes of the following product lines:

    (a)      Pharmaceuticals: Pharmaceutical sales decreased $287,464 (18.8%) for the six months ended June 30, 2008 when compared with the comparable period in 2007. In the first quarter of 2007 the Company implemented a 9% price increase on its pharmaceutical products, which resulted in customers purchasing approximately five times the normal volume in February 2007 in advance of the price increase. While the Company implemented a price increase again in the first quarter of 2008, this time it was only 4%, and customers purchased only 50% more product than normal. The Company believes that this was due to the much smaller price increase in 2008 compared with 2007. As a result, sales of the Company’s pharmaceutical products in the first quarter of 2008 were significantly lower than in the first quarter of 2007. Since the Company’s sales of these products are relatively stable from year to year, the Company anticipates that the quantity of pharmaceutical products that will be sold in 2008 will attain levels very close to last year’s levels, and that because customers did not take in excess quantities of those products in anticipation of the price increase this year, more of those sales will be at the higher price, which should result in increased revenue from these products in 2008 compared with 2007.
     
      Pharmaceutical sales increased by $244,482 (84.4%) for the three months ended June 30, 2008 when compared with the comparable period in 2007. This was primarily due to the fact that second quarter 2007 sales were impacted more heavily by the unusually strong first quarter than were the second quarter 2008 sales.
     
    (b)      Personal care products: For the six months ended June 30, 2008 the Company’s sales of personal care products decreased by $623,257 (14.1%) when compared with the six months ended June 30, 2007. For the three months ended June 30, 2008 the Company’s sales of personal care products decreased by $283,739 (13.3%) when compared with the three months ended June 30, 2007. Based on feedback from the Company’s marketing partners, the Company believes that this decrease was due primarily to the ordering patterns of its customers rather than any real decline in the use of the Company’s products.
     

    Page 15 of 20


    (c)      Medical (non-pharmaceutical) products: Sales of the Company’s medical products increased $123,304 (13.8%) and $243,458 (65.6%) for the six- and three-month periods ended June 30, 2008 when compared with the comparable periods ended June 30, 2007.
     
      The Company believes that this increase is due to buying patterns of its customers.
     
    (d)      Industrial products: Sales of industrial products decreased $6,829 (11.7%) for the six- month period ending June 30, 2008 when compared with the comparable period in 2007.
     
      For the three months ended June 30, 2008, sales of industrial products increased $571 (2.7%) when compared with the comparable period in 2007.
     

    In addition to the above changes in sales, net sales allowances decreased $35,778 (23.9%) for the six months ended June 30, 2008 while increasing $3,789 (7.9%) three months ended June 30, 2007.

    Cost of Sales

    Cost of sales as a percentage of sales increased to 42.3% for the six months ended June 30, 2008 from 41.3% for the comparable period in 2007. For the three months ended June 30, 2008 cost of sales as percentage of sales increased to 43.8% from 41.2% when compared to the comparable period in 2007. The increase in costs of sales was primarily due to an increase in cost of the Company’s most significant raw material, and to a lesser extent to escalating energy and transportation costs.

    Operating Expenses

    Operating expenses increased $18,488 (1.4%) and $12,412 (1.8%), respectively, for the six and three months ended June 30, 2008 compared with the comparable periods in 2007. This increase was primarily attributable to payroll and payroll-related expenses.

    Other Income

    Other income decreased $50,758 (17.5%) and $45,971 (27.9%), respectively, for the six and three months ended June 30, 2008 when compared with the comparable periods in 2007. This decrease was mainly attributable to a decrease in interest rates and lower returns on investments in 2008.

    Provision for Income Taxes

    The provision for income taxes decreased by $262,100 (25.2%) and $28,139 (7.2%), respectively, for the six and three months ended June 30, 2008 when compared with the comparable periods in 2007. These decreases are primarily due to decreases in income before taxes of $570,922 (19.5%) and $15,409 (1.4%), respectively, for the six and three months ended June 30, 2008 compared with the comparable periods in 2007.

    The Company's effective income tax rate decreased to 33% for the six months ended June 30, 2008 compared with 35.6% for the comparable period in 2007. The effective tax rate decreased to 32.9% for the three-month period ended June 30, 2008 compared with 35.0% for the comparable period in 2007. The decreases in the effective rates are principally attributable to changes in state income tax allocation percentages. Those changes, along with changes in the Federal Domestic Production Activities Deduction, primarily account for differences in the effective income tax rate from the statutory federal income tax rate.

    Page 16 of 20


    LIQUIDITY AND CAPITAL RESOURCES

    Working capital decreased by $20,108 to $13,380,584 at June 30, 2008 from $13,400,692 at December 31, 2007. The current ratio increased to 11.0 to 1 at June 30, 2008 from 6.7 to 1 at December 31, 2007. The increase in the current ratio was primarily due to the effect of a decrease in dividends payable, partially offset by other changes in working capital items.

    The Company has no commitments for any significant capital expenditures during the remainder of 2008, and 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 generated cash from operations of $1,361,326 and $3,007,332 for the six months ended June 30, 2008 and June 30, 2007, respectively. The decrease was primarily due to a decrease in income from continuing operations and increases in accounts receivable, inventory and prepaid expenses, which were partially offset by increases in accounts payable and accrued expenses.

    Cash provided by investing activities for the six-month period ended June 30, 2008 was $102,011 while cash used in investing activities for the six-month period ending June 30, 2007 was $331,108. This increase was primarily due to a decrease in purchases of plant equipment and a decrease in temporary investments.

    Cash used in financing activities was $2,724,536 and $2,412,592 for the six months ended June 30, 2008 and June 30, 2007, respectively. The increase was mainly due to an increase in dividends paid, with the Company paying a dividend of $0.28 per share in the first quarter of 2008 compared with $0.22 per share paid in the first quarter of 2007.

    NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS

    Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB delayed the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Management has determined that the adoption of SFAS 157 did not have a material effect on the Company’s consolidated financial statements.

    Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statement 115” (“SFAS 159”). This statement provides companies with an option to report selected financial assets and liabilities at fair value. As of June 30, 2008, the Company had not elected to use the fair value option allowed by SFAS 159. Management has determined that the adoption of SFAS 159 did not have a material effect on the Company’s consolidated financial position, results of operations, cash flows or financial statement disclosures.

    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations” (“SFAS 141 (R)”). The standard changes the accounting for business combinations including the

    Page 17 of 20


    measurement of acquired shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer's income tax valuation allowance. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect SFAS 141(R) to have a significant impact on the Company’s financial position.

    In December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders' equity, and the elimination of "minority interest" accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS 160 revises the accounting for both increases and decreases in a parent's controlling ownership interest. SFAS 160 is effective for fiscal years beginning after December 15, 2008. with early adoption prohibited. The Company is currently evaluating the effect, if any, the adoption will have on the Company's financial position and results of operations, but does not expect the adoption of SFAS 160 to have a significant impact on the Company’s financial position.

    OFF-BALANCE SHEET ARRANGEMENTS

    The Company has no off balance 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 4T. CONTROLS AND PROCEDURES

    (a)      DISCLOSURE CONTROLS AND PROCEDURES
     
      The Company’s management, including its Principal Executive Officer and Principal 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 Principal Financial Officer, it was determined that, as of the end of the period covered by this quarterly report, the Company’s disclosure
     

    Page 18 of 20


      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 Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosures.
     
    (b)      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
     
      The Company's Principal Executive Officer and Principal 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 
     


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

     

    ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF 
      PROCEEDS. 
     


    NONE

     
    ITEM 3.  DEFAULTS UPON SENIOR SECURITIES 
     


    NONE

    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
     


    NONE

    ITEM 5.  OTHER INFORMATION 
     


    NONE


    Page 19 of 20


    ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

                  (a) Exhibits

    31.1      Certification of Kenneth H. Globus, President and principal executive officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
    31.2      Certification of Robert S. Rubinger, Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
    32.1      Certification of Kenneth H. Globus, President and principal executive officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
    32.2      Certification of Robert S. Rubinger, Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      (b) Reports on Form 8-K

    There was one report on Form 8-K filed during the fiscal quarter ended June 30, 2008. It was filed on May 15, 2008, and related to (a) the issuance of a press release on May 13, 2008 that released the Company’s financial results for the fiscal quarter ended March 31, 2008, and (b) the issuance of a press release on May 15, 2008 announcing that at its meeting on May 14, 2008 the Company’s Board of Directors had declared a cash dividend of $0.27 per share, which was to be paid on June 16, 2008 to all stockholders of record as of the close of business on June 2, 2008.

    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.

                                                                                                                                    UNITED-GUARDIAN, INC.
                                                                                                                 (Registrant)

                                                             By: /S/ KENNETH H. GLOBUS
                                                                  Kenneth H. Globus
                                                                  President

                                                           By: /S/ ROBERT S. RUBINGER
                                                                  Robert S. Rubinger
                                                                  Chief Financial Officer

    Date: August 12, 2008

    Page 20 of 20