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UNITED GUARDIAN INC - Quarter Report: 2023 June (Form 10-Q)

ug20230630_10q.htm
 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

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

 

For the quarterly period ended June 30, 2023

 

 

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

Incorporation or Organization)

(I.R.S. Employer Identification No.)

 

230 Marcus Boulevard, Hauppauge, New York 11788

(Address of Principal Executive Offices)

 

(631) 273-0900

(Registrants 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:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.10 par value per share

UG

NASDAQ Global Market

 

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 preceding 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 every Interactive Data File required to be submitted 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 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 accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Non-accelerated filer

Accelerated filer

Smaller reporting company ☑

Emerging growth company ☐

 

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 issuers classes of common stock, as of the latest practicable date:

 

As of August 1, 2023, the Registrant had issued and outstanding 4,594,319 shares of Common Stock, $.10 par value per share ("Common Stock").

 

 

 

 

 

 

 

 

 

 

 

Cover Page 2 of 2

 

 

 

UNITED-GUARDIAN, INC.

 

INDEX TO FINANCIAL STATEMENTS

 

  PageNo.

Part I. FINANCIAL INFORMATION

 
   

Item 1 - Condensed Financial Statements (unaudited unless indicated otherwise)

 
   

Statements of Income - Three and Six Months ended June 30, 2023 and 2022

2

   

Balance Sheets – June 30, 2023 (unaudited) and December 31, 2022 (audited)

3-4

   

Statements of Changes in Stockholders’ Equity – Three and Six Months ended  June 30, 2023 and 2022

5

   

Statements of Cash Flows – Six Months ended June 30, 2023 and 2022

6

   

Notes to Condensed Financial Statements

7-7

   

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

15-22

   

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

22

   

Item 4 - Controls and Procedures

22-23

   

Part II. OTHER INFORMATION

 
   

Item 1 - Legal Proceedings

23

   

Item 1A - Risk Factors

23

   

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

23

   

Item 3 - Defaults Upon Senior Securities

23

   

Item 4 - Mine Safety Disclosures

23

   

Item 5 - Other Information

23

   

Item 6 - Exhibits

24

   

Signatures

24

 

 

 

Page 1 of 24

 

UNITED-GUARDIAN, INC.

 

Part I. FINANCIAL INFORMATION

 

ITEM 1. Condensed Financial Statements

 

 

STATEMENTS OF INCOME
(unaudited)

 

   

THREE MONTHS

ENDED JUNE 30,

   

SIX MONTHS ENDED

JUNE 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Net sales

  $ 2,650,299     $ 3,626,177     $ 5,220,623     $ 7,518,535  
                                 

Costs and expenses:

                               

Cost of sales

    1,429,407       1,693,753       2,523,002       3,403,870  

Operating expenses

    574,093       620,229       1,092,039       1,166,978  

Research and development expense

    128,729       112,266       255,688       243,932  

Total costs and expenses

    2,132,229       2,426,248       3,870,729       4,814,780  

Income from operations

    518,070       1,199,929       1,349,894       2,703,755  
                                 

Other income (expense):

                               

Investment income

    54,950       58,860       102,582       99,410  

Net gain (loss) gain on marketable securities

    7,479       (460,278

)

    80,180       (853,938

)

Total other income (expense)

    62,429       (401,418

)

    182,762       (754,528

)

Income before provision for income taxes

    580,499       798,511       1,532,656       1,949,227  
                                 

Provision for income taxes

    119,405       165,187       315,481       404,438  

Net income

  $ 461,094     $ 633,324     $ 1,217,175     $ 1,544,789  
                                 
Earnings per common share                                

(basic and diluted)

  $ 0.10     $ 0.14     $ 0.26     $ 0.34  
                                 
Weighted average shares                                

(basic and diluted)

    4,594,319       4,594,319       4,594,319       4,594,319  

 

 

See Notes to Condensed Financial Statements

 

Page 2 of 24

 

UNITED-GUARDIAN, INC.

 

 

BALANCE SHEETS

 

    JUNE 30,     DECEMBER 31,  
   

2023

    2022  
   

(unaudited)

    (audited)  

Current assets:

               

Cash and cash equivalents

  $ 6,482,907     $ 830,452  

Marketable securities

    939,576       5,653,516  

Accounts receivable, net of allowance for doubtful accounts of $34,823 at June 30, 2023 and $20,063 December 31, 2022

    1,540,221       1,427,576  

Inventories, net

    1,779,026       1,672,012  

Prepaid expenses and other current assets

    225,559       201,846  

Prepaid income taxes

    395,986       185,228  

Total current assets

    11,363,275       9,970,630  
                 

Deferred income taxes, net

    -       110,544  

Net property, plant, and equipment:

               

Land

    69,000       69,000  

Factory equipment and fixtures

    4,587,637       4,585,055  

Building and improvements

    2,897,072       2,895,742  

Total property, plant, and equipment

    7,553,709       7,549,797  

Less: Accumulated depreciation

    7,039,547       6,990,636  

Total property, plant, and equipment, net

    514,162       559,161  

TOTAL ASSETS

  $ 11,877,437     $ 10,640,335  

 

 

 

 

 

See Notes to Condensed Financial Statements

 

Page 3 of 24

 

UNITED-GUARDIAN, INC.

 

BALANCE SHEETS

(continued)

 

 

LIABILITIES AND STOCKHOLDERS EQUITY

 

    JUNE 30,     DECEMBER 31,  
   

2023

   

2022

 
   

(unaudited)

   

(audited)

 

Current liabilities:

               

Accounts payable

  $ 155,842     $ 30,415  

Accrued expenses and other current liabilities

    1,176,647       1,322,056  

Dividends payable

    21,220       21,220  

Total current liabilities

    1,353,709       1,373,691  
                 

Deferred income taxes, net

    39,909       -  
                 

Commitments and contingencies

           
                 

Stockholders equity:

               

Common stock $.10 par value; 10,000,000 shares authorized; 4,594,319 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

    459,432       459,432  

Retained earnings

    10,024,387       8,807,212  

Total stockholders equity

    10,483,819       9,266,644  
                 

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

  $ 11,877,437     $ 10,640,335  

 

See Notes to Condensed Financial Statements

 

 

 

Page 4 of 24

 

UNITED-GUARDIAN, INC.

 

 

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(unaudited)

 

 

THREE AND SIX MONTHS ENDED JUNE 30, 2023

 

    Common stock                  
   

 

Shares
    Amount    

 

Retained

Earnings

    Total  

Balance, January 1, 2023

    4,594,319     $ 459,432     $ 8,807,212     $ 9,266,644  

Net income

    -       -       756,081       756,081  

Balance, March 31, 2023

    4,594,319     $ 459,432     $ 9,563,293     $ 10,022,725  

Net income

    -       -       461,094       461,094  

Balance, June 30, 2023

    4,594,319     $ 459,432     $ 10,024,387     $ 10,483,819  

 

 

 

 

THREE AND SIX MONTHS ENDED JUNE 30, 2022

 

    Common stock                  
   
Shares
    Amount     Retained

Earnings

    Total  

Balance, January 1, 2022

    4,594,319     $ 459,432     $ 9,361,837     $ 9,821,269  

Net income

    -       -       911,465       911,465  

Balance, March 31, 2022

    4,594,319     $ 459,432     $ 10,273,302     $ 10,732,734  

Net income

    -       -       633,324       633,324  

Dividends declared and paid ($0.37 per share)

    -       -       (1,699,392

)

    (1,699,392

)

Dividends declared but not paid ($0.37 per share)

    -       -       (506

)

    (506

)

Balance, June 30, 2022

    4,594,319     $ 459,432     $ 9,206,728     $ 9,666,160  

 

 

 

 

 

See Notes to Condensed Financial Statements

 

Page 5 of 24

 

 

UNITED-GUARDIAN, INC.

STATEMENTS OF CASH FLOWS
(unaudited)

 

   

SIX MONTHS ENDED

 
   

June 30,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net income

  $ 1,217,175     $ 1,544,789  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    48,911       68,511  

Net (gain) loss on marketable securities

    (80,180

)

    853,938  

Gain on sale of equipment

    (10,000

)

    -  

Allowance for doubtful accounts

    14,760       8,146  

Allowance for obsolete inventory

    8,000       -  

Deferred income taxes

    150,453       (51,319

)

(Increase) decrease in operating assets:

               

Accounts receivable

    (127,405

)

    (301,337

)

Inventories

    (115,014

)

    (317,415

)

Prepaid expenses and other current assets

    (23,713

)

    (54,421

)

Prepaid income taxes

    (210,758

)

    (231,405

)

Increase (decrease) in operating liabilities:

               

Accounts payable

    125,427       5,548  

Accrued expenses

    (145,409

)

    (81,532

)

Deferred revenue

    -       (190,164

)

Income taxes payable

    -       (88,738

)

                 

Net cash provided by operating activities

    852,247       1,164,601  
                 

Cash flows from investing activities:

               

Acquisition of property, plant, and equipment

    (3,912

)

    (12,293

)

Proceeds from sale of equipment

    10,000       -  

Proceeds from sale of marketable securities

    5,255,145       1,658,292  

Purchase of marketable securities

    (461,025

)

    (1,286,849

)

Net cash provided by investing activities 

    4,800,208       359,150  
                 

Cash flows from financing activities:

               

Dividends paid

    -       (1,699,392

)

Net cash used in financing activities

    -       (1,699,392

)

                 

Net increase (decrease) in cash and cash equivalents

    5,652,455       (175,641

)

Cash and cash equivalents at beginning of period

    830,452       531,213  

Cash and cash equivalents at end of period

  $ 6,482,907     $ 355,572  
Supplemental disclosure of cash flow information                

Taxes paid

  $ 375,000     $ 350.000  

Supplemental disclosure of non-cash dividends payable

  $ -     $ 507  

 

See Notes to Condensed Financial Statements

 

Page 6 of 24

 

UNITED-GUARDIAN, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

 

1.

Nature of Business

 

United-Guardian, Inc. (“Registrant” or “Company”) is a Delaware corporation that, through its Guardian Laboratories division, manufactures and markets cosmetic ingredients, pharmaceuticals, and medical lubricants. The Company conducts research and product development and modifies, refines, and expands the uses for existing products, with the goal of further developing the market for its products. The Company also develops new products using natural and environmentally friendly raw materials, which is a priority for many of the Company’s cosmetic customers.

 

 
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 and six months ended June 30, 2023 (also referred to as the "second quarter of 2023" and the "first half of 2023", respectively) are not necessarily indicative of results that ultimately may be achieved for any other interim period or for the year ending December 31, 2023. 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-K for the year ended December 31, 2022.

 

 
3. Impact of the Coronavirus Pandemic, Global Supply Chain Instability, and Inflation

 

There continues to be residual impact on the Company’s business and financial performance from the coronavirus pandemic. In particular, there has been decreased demand for the Company’s Lubrajel® products in China as a result of (a) slower than expected post-COVID economic recovery in China; (b) increased competition from lower-priced competitors, especially those from Asian producers; (c) overstocking on the part of certain customers while the zero-COVID mandate was in effect in China for much of 2022.

 

As a result of the ongoing supply chain instability, the Company has experienced longer lead times and higher prices for many of its raw materials. The increases in raw material prices have negatively impacted the Company’s gross profit margins in the first half of 2023 and may continue to impact gross profit margins in upcoming quarters. To help offset rising raw material prices and shipping costs and their impact on the Company’s gross margins, the Company has instituted price increases on many of its products.

 

While inflation has lessened somewhat during 2023, it is uncertain if this downward trend in the Company’s gross margins will continue. If the inflation rate begins to rise in the second half of the year, there will likely be further increases in raw material costs, shipping costs, and internal labor costs, which could negatively impact the Company’s future gross margins.

 

Page 7 of 24

 

As a result of the residual effects of the coronavirus pandemic, combined with global supply chain instability and inflation, there continues to be uncertainty regarding the potential impact on the Company’s operations and its financial results. The Company is unable to provide an accurate estimate or projection as to what the future impact will be on the Company’s operations and its financial performance going forward.

 

 
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, as well as 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.

 

 
5. 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 the maturities of United States Treasury Bills. Cash and cash equivalents held in these accounts are currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to a maximum of $250,000. At June 30, 2023 and December 31, 2022, $1,221,000 and $105,000, respectively, exceeded the FDIC limit.

 

Cash and cash equivalents include currency on hand, demand deposits with banks or financial institutions, and short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. The following table summarizes the Company's cash and cash equivalents:

                  

    June 30, 2023     December 31, 2022  

Demand Deposits

  $ 809,236     $ 333,275  

Money Market Funds

    1,005,821       -  

U.S. Treasury Bills (original 3-month maturity)

    4,667,850       497,177  

Total Cash and Cash Equivalents

  $ 6,482,907     $ 830,452  

 

 

Page 8 of 24

 

 

 
6. Revenue Recognition

 

The Company records revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.” Under this guidance, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company’s principal source of revenue is product sales.

 

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

 

During 2023 and 2022, the Company participated in various government drug rebate programs related to the sale of Renacidin®, our best-selling pharmaceutical product. These programs include the Veterans Affairs Federal Supply Schedule (FSS), and the Medicare Part D Coverage Gap Discount Program (CGDP). These programs require the Company to sell its product at a discounted price. The Company’s sales, as reported, are net of these product rebates and discounts, some of which are estimated and are recorded in the same period that the revenue is recognized.

 

The Company recognizes revenue from sales of its cosmetic ingredients, medical, and industrial products when those products are shipped, as long as a valid purchase order has been received and 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 and the Company’s performance obligation is satisfied. 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. Sales of pharmaceutical products are final, and revenue is recognized at the time of shipment, which is when the risk of loss and responsibility for the shipment passes to the customer, and the performance obligation of the Company is satisfied. 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 its 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 prior year historical returns of its pharmaceutical products.

 

The Company does not make sales on consignment, and the collection of the proceeds from the sale of any of the Company’s products is not contingent upon the customer being able to sell the goods to a third party.

 

Page 9 of 24

 

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. The Company has not experienced significant fluctuations between estimated allowances and actual activity. At June 30, 2023 and 2022, the Company had an allowance of $277,274 and $331,943, respectively, for possible outdated material returns, which is included in accrued expenses.

 

The Company has distribution fee contracts with certain distributors of its pharmaceutical products that entitle them to distribution and service-related fees. The Company estimates distribution fees and records distribution fees as offsets to revenue.

 

Disaggregated sales by product class are as follows:

 

    Three months ended

June 30,

    Six months ended

June 30,

 
    2023     2022     2023     2022  

Cosmetic ingredients

  $ 772,887     $ 1,393,963     $ 1,534,788     $ 3,471,878  

Pharmaceuticals

    1,376,601       1,238,384       2,730,825       2,463,597  

Medical lubricants

    482,512       962,080       903,543       1,519,875  

Industrial products

    18,299       31,750       51,467       63,185  

Total Net Sales

  $ 2,650,299     $ 3,626,177     $ 5,220,623     $ 7,518,535  

 

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 in the second quarter of 2023 were to customers located outside of the United States, compared with approximately 35% in the second quarter of 2022. For the six months ended June 30, 2023, approximately 23% of the Company’s total sales were to customers located outside of the United States, compared with approximately 28% for the six months ended June 30, 2022.

 

Disaggregated sales by geographic region are as follows:

 

    Three months ended     Six months ended  
    June 30,     June 30,  
   

2023

   

2022

   

2023

   

2022

 

United States*

  $ 2,067,533     $ 2,353,952     $ 4,009,775     $ 5,433,846  

Other countries

    582,766       1,272,225       1,210,848       2,084,689  

Total Sales

  $ 2,650,299     $ 3,626,177     $ 5,220,623     $ 7,518,535  

 

 

* Since substantially all purchases by ASI are shipped to ASI’s warehouses in the U.S., all sales to ASI are reported as U.S. sales for financial reporting purposes, even though a significant quantity of those purchases will be shipped by ASI to foreign customers. ASI has reported to the Company that approximately 70% of its sales of the Company’s products in the second quarter of 2023 were to foreign customers, with China representing approximately 40%. For the same time period in 2022, approximately 75% of ASI’s sales of the Company’s products were to foreign customers, with China representing approximately 46%.

 

Page 10 of 24

 

For the six months ended June 30, 2023 approximately 70% of ASI’s sales of the Company’s products were to customers in other countries, with China accounting for approximately 29% of ASI’s sales of the Company’s products, as compared with approximately 73% of ASI’s sales going to customers in other countries for the six months ended June 30, 2022, with China accounting for approximately 43% of ASI’s sales of the Company’s products during that period.

 

 

7.

Accounting for Financial Instruments – Credit Losses

 

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses. In accordance with this standard, the Company recognizes an allowance for credit losses for its trade receivables to present the net amount expected to 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 are based on Current Expected Credit Losses (CECL). Implementation of this standard did not have a material effect on the Company’s financial statements.

 

The timing between recognition of revenue for product sales and the receipt of payment is not significant. The Company’s standard credit terms, which vary depending on the customer, range between 30 and 60 days. The Company provides allowances for any receivables for which collection is doubtful in accordance with ASU 2016-13. As of June 30, 2023 and December 31, 2022, the allowance for doubtful accounts receivable was $34,823 and $20,063, respectively. Prompt-pay discounts are offered to some customers; however, due to the uncertainty of the customers taking the discounts, the discounts are recorded only after they have been taken.

 

 
8. Marketable Securities

 

Marketable securities include investments in fixed income and equity mutual funds and certificates of deposit, which are reported at their fair values.

 

The disaggregated net gains and losses on marketable securities that were recognized on the income statements for the three- and six-months ended June 30, 2023 and June 30, 2022 were as follows:

 

   

THREE MONTHS ENDED
JUNE 30,

   

SIX MONTHS ENDED
JUNE 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net gains (losses) recognized during the period on marketable securities

  $ 7,479     $ (460,278

)

  $ 80,180     $ (853,938

)

Less: Net losses recognized on marketable securities sold during the period

    (433,769

)

    (207,936

)

    (433,769

)

    (207,936

)

Unrealized gains (losses) recognized during the reporting period on marketable securities still held at the reporting date

  $ 441,248     $ (252,342

)

  $ 513,949     $ (646,002

)

 

The fair values of the Company’s marketable securities are determined in accordance with US GAAP, with fair value being defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the Company utilizes the three-tier value hierarchy, as prescribed by US GAAP, which prioritizes the inputs used in measuring fair value as follows:

 

Page 11 of 24

 

 

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:

 

June 30, 2023 (unaudited)

 

    Cost     Fair value    

Unrealized

gain (loss)

 
Equity Securities                        

Fixed income certificates of deposit

  $ 400,000     $ 400,000     $ -  

Equity and other mutual funds

    538,503       539,576       1,073  

Total equity securities

    938,503       939,576       1,073  

Total marketable securities

  $ 938,503     $ 939,576     $ 1,073  

 

December 31, 2022 (audited)

 

Equity Securities

                       

Fixed income mutual funds

  $ 5,449,227     $ 4,924,497     $ (524,730

)

Equity and other mutual funds

 

717,165

      729,019       11,854  

Total equity securities

    6,166,392       5,653,516       (512,876

)

Total marketable securities

  $ 6,166,392     $ 5,653,516     $ (512,876

)

 

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

 

Proceeds from the sale and redemption of marketable securities amounted to $5,255,145 for the first half of 2023, which includes realized losses of $433,769. Proceeds from the sale and redemption of marketable securities amounted to $1,658,292 for the first half of 2022, which included realized losses on sales of $207,936.

 

Page 12 of 24

 

 
9. Inventories

 

   

June 30,

   

December 31,

 
   

2023

   

2022

 
   

(unaudited)

   

(audited)

 

Inventories consist of the following:

               

Raw materials

  $ 524,927     $ 601,125  

Work in process

    57,751       16,520  

Finished products

    1,196,348       1,054,367  

Total inventories

  $ 1,779,026     $ 1,672,012  

 

Inventories are valued at the lower of cost and net realizable value. Cost is determined using the average cost method, which approximates cost determined by the first-in, first-out (“FIFO”) method. Finished product inventories at June 30, 2023 and December 31, 2022 are stated net of a reserve of $72,000 and $64,000, respectively, for slow moving and obsolete inventory.

 

 
10. Income Taxes

 

The Company’s tax provision is based on its estimated annual effective tax rate. The Company continues to fully recognize its tax benefits, and as of June 30, 2023 and December 31, 2022, the Company did not have any unrecognized tax benefits. The Company’s provision for income taxes for the three- and six-months ended June 30, 2023 and 2022, included the following:

 

 

   

Three months ended

June 30,

   

Six months ended

June 30,

 
    2023     2022     2023     2022  

(Benefit) provision for federal income taxes - current

  $ (81,601 )   $ 331,161     $ 164,778     $ 455,657  

Provision for state income taxes - current

    -       -       250       100  

Provision (benefit) for federal income taxes - deferred

    201,006       (165,974

)

    150,453       (51,319

)

Total provision for Income taxes

  $ 119,405     $ 165,187     $ 315,481     $ 404,438  

 

 
11. 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 also makes discretionary contributions to each employee's account based on a "pay-to-pay" safe-harbor formula that qualifies the 401(k) Plan under current IRS regulations. Employees become vested in the discretionary contributions as follows: 20% after two years of employment, and 20% for each year of employment thereafter until the employee becomes fully vested after six years of employment.

 

Page 13 of 24

 

The Company accrued $54,500 in contributions to the DC Plan for the six-months ended June 30, 2023 and 2022, respectively. In the first six months of 2023, the Company made discretionary contributions of $94,326 to the DC Plan. This payment represented the remaining portion of the Company’s 2022 discretionary contribution. For the first half of 2022, the Company made discretionary contributions of $109,000 to the DC Plan.

 

 
12. Other Information

 

   

June 30,

   

December 31,

 

Accrued Expenses

 

2023
(unaudited)

   

2022

(audited)

 

Bonuses

  $ 93,502     $ 175,496  

Distribution fees

    411,361       395,536  

Payroll and related expenses

    138,878       53,475  

Reserve for outdated material

    277,274       369,154  

Company 401(k) contribution

    54,500       94,326  

Audit fee

    42,500       66,500  

Annual report expenses

    27,449       68,349  

Sales rebates

    62,774       80,926  

Insurance

    43,250       -  

Other

    25,159       18,294  

Total accrued expenses

  $ 1,176,647     $ 1,322,056  

 

 
13. Recent Accounting Pronouncements

 

In January 2023, the Company adopted ASU-2016-13 “Financial Instruments – Credit Losses.” This guidance introduces a new credit loss methodology, Current Expected Credit Losses (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The guidance requires organizations to measure all expected credit losses for financial instruments at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Implementation of this standard did not have a material effect on the Company’s financial statements.

 

 
14. Concentrations 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 of time, the Company believes that its credit risk from accounts receivable is low.

 

During the three months ended June 30, 2023, one of the Company’s cosmetic ingredient distributors, along with three of its pharmaceutical distributors, together were responsible for 81% of the Company’s sales, and accounted for 84% of its outstanding accounts receivable at June 30, 2023. During the three months ended June 30, 2022, the same cosmetic ingredient distributor and three pharmaceutical distributors together were responsible for 65% of the Company’s sales, and accounted for 68% of its outstanding accounts receivable at June 30, 2022.

 

Page 14 of 24

 

During the six months ended June 30, 2023, one of the Company’s cosmetic ingredient distributors, along with three of its pharmaceutical distributors, together were responsible for 78% of the Company’s sales, and accounted for 84% of its outstanding accounts receivable at June 30, 2023. During the six-month period ended June 30, 2022, the same cosmetic ingredient distributor and three pharmaceutical distributors together were responsible for 72% of the Company’s sales, and accounted for 68% of its outstanding accounts receivable at June 30, 2022.

 

 
15. Related-Party Transactions

 

For the three- and six-month periods ended June 30, 2023, the Company made payments of $30,000 and $60,000 respectively, to Ken Globus, the Company’s former President, for consulting services provided to the Company. There were no payments made to Mr. Globus for consulting services in the corresponding periods in 2022.

 

For the three- and six-month periods ended June 30, 2023, the Company made payments of $3,000, to the accounting firm PKF O’Connor Davies (“PKF”) for accounting and tax services. Lawrence Maietta, a partner at PKF, is a director of the Company. For the three- and six-month periods ended June 30, 2022, the Company made payments of $5,000 to the accounting firm PKF, for accounting and tax services.

 

 
16. 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.

 

Per share basic and diluted earnings amounted to $0.10 and $0.14 for the three months ended June 30, 2023 and 2022, respectively, and $0.26 and $0.34 for the six months ended June 30, 2023 and 2022, respectively.

 

 

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

 

The following discussion and analysis covers material changes in the financial condition of the Company since the year ended December 31, 2022, and a comparison of the results of operations for the second quarter of 2023 and 2022 and the first half of 2023 and 2022. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. All references in this quarterly report to “sales” or “Sales” shall mean “net sales” unless specifically identified as “gross sales”.

 

Page 15 of 24

 

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 the 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 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, manufactures and markets cosmetic ingredients, pharmaceuticals, and medical lubricants. The Company conducts various research and development activities. The Company’s research and development department modifies, refines, and expands the uses for existing products, with the goal of further developing the markets that its products are used in. The Company also develops new products with a focus on using natural and environmentally friendly raw materials, which is a priority for many of the Company’s cosmetic customers. All the products that the Company markets, except for Renacidin, are produced at its facility in Hauppauge, New York. Renacidin, a urological product, is manufactured for the Company by an outside contract manufacturer.

 

One of the Company’s most important product lines is its Lubrajel line of multifunctional water-based gel formulations, which are designed to provide sensory enhancement, lubrication, hydration, and texture to both personal care and medical products.

 

The Company’s cosmetic ingredients are marketed worldwide for cosmetic uses by five distributors, each handling a different geographic area, with the largest being U.S.-based ASI. In the last few years, to meet the growing demand for “green” and sustainable products, the Company has focused on developing and launching new products which only contain ingredients that are considered “natural”. The Lubrajel products in the new natural line have been certified by the Cosmetic Organic and Natural Standard (“COSMOS”). This standard is recognized globally by the cosmetic industry.

 

Page 16 of 24

 

Renacidin and the Company’s other pharmaceutical product, Clorpactin® WCS-90, are distributed through full-line drug wholesalers and are currently marketed only in the United States. Those wholesalers in turn sell the products to pharmacies, hospitals, nursing homes, other long-term care facilities, and government agencies, primarily the VA. The Company promotes Renacidin through a dedicated website. Clorpactin WCS-90, as well as the Company’s other products, are marketed through information provided on the Company’s corporate website.

 

The Company’s medical lubricants, which consist of water-based gel formulations designed to provide sensory enhancement and lubrication mainly for medical device applications. Products are sold directly to end-users, or to contract manufacturers utilized by those end-users.

 

The Company does have competition in the marketplace for some of its products, particularly its cosmetic ingredients, some of its pharmaceutical products and its medical lubricants. These competitive products are usually sold at a lower price than the Company’s products; however, they may not compare favorably to the level of performance and quality of 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; 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.

 

In recent years, the Company has elected to rely on trade secret protection to protect its intellectual property for proprietary product formulations and manufacturing methods. The Company will file for patent protection in situations where the Company believes that relying on trade secret protection alone would not provide sufficient protection. The Company owns the Lubrajel®, Renacidin®, and Clorpactin® trademarks.

 

The current supply chain instability has not significantly affected the ability of the Company to obtain raw materials, but it has made some of those materials more expensive and created longer lead times for some of them. The increased costs of some of these raw materials has continued to impact the Company’s gross profit margins and may continue to impact the gross profit margins in the future on certain products. In response to the rising raw material prices, the Company instituted price increases on many of its products where possible and hopes to minimize the impact on the gross margins in the future.

 

With the continuing uncertainty as to what the duration and future impact of the pandemic, supply chain instability and increasing interest rates will be, the Company is unable to provide an accurate estimate or projection as to what the continuing impact of the pandemic will be on the Company’s operations or its financial results in the future.

 

 

Page 17 of 24

 

CRITICAL ACCOUNTING POLICIES

 

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, 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, 2022, 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, 2022, and a comparison of the results of operations for the six months ended June 30, 2023 and June 30, 2022. This discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. All references in this quarterly report to “sales” or “Sales” shall mean Net Sales unless specified otherwise.

 

The Company recognizes revenue from sales of its cosmetic ingredients, medical lubricants, 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 a 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, which is when the performance obligation is satisfied. 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 its 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.

 

In accordance with ASU-2016-13, the Company recognizes an allowance for credit losses for financial assets carried at amortized cost to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset.

 

 

 

Page 18 of 24

 

RESULTS OF OPERATIONS

 

Net Sales

 

Net sales for the second quarter of 2023 decreased by $975,878 (27%) when compared with the same period in 2022. Net sales for the first half of 2023 decreased by $2,297,912 (31%) as compared with the corresponding period in 2022. The decrease in sales for the second quarter of 2023 and the first half of 2023 were attributable to changes in sales of the following product lines:

 

Cosmetic ingredients:

 

(a) Second quarter sales: For the second quarter of 2023, the Company’s sales of cosmetic ingredients decreased by $621,076 (45%) when compared with the second quarter of 2022. The decrease was due primarily to a net decrease of $402,586 (43%) in sales of the Company’s cosmetic ingredients to ASI when compared with the second quarter of 2022. Based on information provided by ASI, the decrease in sales was due to three main factors 1) decreased demand for the Company’s Lubrajel products in China due to slow post-COVID economic growth; 2) increased competition from lower-priced competitors, especially those from Asian producers; and 3) customers working off excess stock, maintaining lower inventory levels, and changing ordering patterns to just in time.

 

Second quarter sales to the Company’s four other distributors, as well as to one direct cosmetic ingredient customer, decreased by a net of $218,490 (50%) compared with the second quarter of 2022. The decrease was attributable to sales decreases of $225,182 to the Company’s distributors in the UK and Italy. These decreases were offset by an increase in sales of $6,692 to the Company’s distributors in Switzerland and France as well as one direct customer.

 

(b) Six-month sales: For the first half of 2023 the Company’s sales of cosmetic ingredients decreased by $1,937,090 (56%) when compared with the corresponding period in 2022. This decrease was due primarily to a net decrease in sales to ASI of $1,564,484 (59%) when compared with the second quarter of 2022. This decrease was combined with a net decrease in sales of $372,606 to the Company’s four other distributors and one direct customer. Sales to the Company’s distributors in the United Kingdom, France, and Italy and one direct customer decreased by $374,965 and sales to the Company’s distributor in Switzerland increased by $2,359.

 

Pharmaceuticals:

 

There are fees, rebates and allowances associated with sales of the Company’s two pharmaceutical products, Renacidin and Clorpactin. As a result, discussion of the Company’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 for the three- and six-month periods ended June 30, 2023 increased by $154,369 (10%) and $180,009 (6%), respectively, compared with the corresponding periods in 2022. These increases were due primarily to increases of $170,351 (13%) and $183,490 (7%) in gross sales of Renacidin for the three- and six-month periods, respectively, ended June 30, 2023. These increases were offset by decreases of $15,982 (8%) and $3,481 (1%) in gross sales of the Company’s other pharmaceutical product, Clorpactin, for the same three- and six-month periods, respectively. The Company attributes the increase in sales of Renacidin to a price increase that went into effect during the quarter combined with normal fluctuations in customer ordering patterns. The decrease in sales of Clorpactin was also believed to be caused by normal fluctuation in customer ordering patterns.

 

Page 19 of 24

 

The difference between the net sales increase compared with the gross sales increase for these products is due to a combination of 1) the net increase in gross sales of those products, combined with; 2) an increase in pharmaceutical sales allowances of $16,152 (5%) for the three-month period ended June 30, 2023, and a decrease in pharmaceutical sales allowances of $87,218 (21%) for the six-month period ended June 30, 2023. These allowances typically have a direct relationship with the sales of the Company’s pharmaceutical products, however, for the six-month period ended June 30, 2023, the decrease in sales allowances was primarily due to a decrease in outdated material returns allowances.

 

Medical lubricants:

 

Sales of the Company’s medical lubricants for the three- and six-month periods ended June 30, 2023, decreased by $479,568 (50%) and $616,332 (41%), respectively, compared with the same periods in 2022. The decrease in sales for the three- and six-month periods was primarily due to one of the Company’s larger customers in China changing their ordering patterns in 2023 due to the overstocking of product while China’s Zero-COVID Mandate was in place.

 

Industrial and other products:

 

Sales of the Company's industrial products, as well as other miscellaneous products, for the three- and six-month periods ended June 30, 2023, decreased by $13,451 and $11,718, respectively, when compared with the corresponding periods in 2022. The decrease in sales for both periods was primarily due to the Company’s phase out of its industrial product line due to low sales. The second quarter of 2023 is the last period for which the Company will be reporting sales of this product line.

 

Cost of Sales

 

Cost of sales as a percentage of net sales increased to 54% in the second quarter of 2023 from 47% in the second quarter of 2022. For the first six months of 2023, cost of sales as a percentage of sales increased to 48% compared with 45% for the first six months of 2022. The increases in both periods were the result of 1) the product sales mix in 2023 compared with the same periods in 2022. The Company’s pharmaceutical products represented a larger percentage of the Company’s sales for both the three- and six-month periods ended June 30, 2023 compared with the same periods in 2022. These products carry a lower gross margin than the Company’s cosmetic products and medical lubricants, and 2) higher per unit overhead costs due to reduced production caused by lower demand for some of the Company’s products.

 

Operating Expenses

 

Operating expenses, consisting of selling and general and administrative expenses, decreased by $46,136 (7%) and $74,939 (6%) respectively, for the three- and six-month periods ended June 30, 2023 compared with the equivalent periods in 2022. The decrease in both periods was mainly due to decreases in employee bonuses and depreciation expenses.

 

 

 

Page 20 of 24

 

Research and Development Expenses

 

Research and development expenses increased by $16,463 (15%) and $11,756 (5%), respectively, for the three- and six-month periods ended June 30, 2023, compared with the equivalent periods in 2022. The increase was primarily due to increases in payroll and payroll-related expenses.

 

Investment Income

 

Investment income decreased by $3,910 (7%) for the second quarter of 2023 compared with the second quarter of 2022 and increased by $3,172 (3%) for the first half of 2023 compared with the same period in 2022. The decrease in the second quarter was primarily due to a shift in the investment portfolio from equity and fixed income mutual funds to U.S. Treasury Bills and Certificates of Deposit, which yielded slightly less income during the second quarter of 2023 compared to the same period in 2022. The increase for the six-month period was primarily due to an increase in the overall investment portfolio.

 

Net Gain (loss) on Marketable Securities

 

For the three- and-six-month periods ended June 30, 2023, the Company recorded net gains on its marketable securities portfolio in the amount of $7,479 and $80,180, respectively. For the corresponding periods in 2022, the Company recorded net losses of $460,278 and $853,938, respectively. The reason for the fluctuation was due to 1) during 2022, the Company’s fixed income mutual funds (which made up approximately 90% of the investment portfolio) lost a significant amount of value due to increases in interest rates and those unrealized losses were recorded during 2022; and 2) a majority of those mutual funds were sold during the second quarter of 2023, and while most of the losses had already been recorded in 2022, there were some increases in market value at the time of these sales, which created unrealized gains in the current period. The Company’s management and Board of Directors are continuing to closely monitor the Company's investment portfolio and will make any adjustments they believe may be necessary or appropriate in order to minimize the future impact on the Company’s financial position that the volatility of the global financial markets may have.

 

Provision for Income Taxes

 

The Company's effective income tax rate was 21% for the first half and second quarter of both 2023 and 2022. The Company’s tax rate is expected to remain at 21% for the current fiscal year.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Working capital increased from $8,596,939 at December 31, 2022 to $10,009,566 at June 30, 2023, an increase of $1,412,627. The current ratio increased from 7.3 to 1 at December 31, 2022 to 8.4 to 1 at June 30, 2023. The increase in working capital and the current ratio was primarily due to an increase in cash and prepaid income taxes. The increase in cash was primarily due to the Company changing the date of its semiannual dividend payment from June to August.

 

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 intends to utilize its available cash and assets primarily for its continued organic growth and potential future strategic transactions, as well as to mitigate the potential impact of inflation on the Company's business.

 

 

Page 21 of 24

 

The Company is in the process of upgrading its building sprinkler system and expects to incur costs of approximately $100,000 in connection with this upgrade. The project is currently in process and the Company will be making progress payments throughout the remainder of 2023.

 

The Company generated cash from operations of $852,247 and $1,164,601 for the first half of 2023 and 2022, respectively. The decrease from 2022 to 2023 was primarily due to the decrease in net income.

 

Cash provided by investing activities was $4,800,208 in the first half of 2023, compared with cash used by investing activities of $359,150 for the first half of 2022. The increase was due to an increase in the sales of the Company’s marketable securities in the first half of 2023 compared with 2022. The proceeds from these sales were primarily reinvested in short-term U.S. Treasury Bills, which are included in cash and cash equivalents.

 

Cash used in financing activities was $1,699,392 for the first half of 2022 and represented the payment of dividends. There were no financing activities during the first half of 2023 due to the Company shifting the declaration and payment of dividends to the third quarter of 2023.

 

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

 

OFF BALANCE-SHEET ARRANGEMENTS

 

The Company has no off balance-sheet transactions that have, or are reasonably likely to have, a current or future impact 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.

 

 

(a)

DISCLOSURE 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.

 

Page 22 of 24

 

 

(b)

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

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.

 

NONE

 

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

 

NONE

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

NONE

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

NONE

 

ITEM 5. OTHER INFORMATION.

 

NONE

 

 

Page 23 of 24

 

ITEM 6. EXHIBITS.

 

10.1*

Separation Agreement between Beatriz Blanco and the Company dated June 22,2023

   

31.1*

Certification of Donna Vigilante, President and Principal Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   

31.2*

Certification of Andrea Young, Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

   

32*

Certifications of Principal Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   

101.INS*

Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*

Cover Page Interactive Data File (Embedded within the inline XBRL document and included in Exhibit 101.1).

 

* Filed herewith

 

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/ DONNA VIGILANTE            

Donna Vigilante

President 

   
Date: August 8, 2023

By:  /S/ ANDREA YOUNG

Andrea Young

Chief Financial Officer

 

 

 

 

 

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