U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2005
------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to ___________
Commission File Number: 1-10526
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UNITED-GUARDIAN, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-1719724
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
230 Marcus Boulevard., Hauppauge, New York 11788
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(Address of principal executive offices)
(631) 273-0900
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(Registrant's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 [X] No [ ]
Cover Page 1 of 2 Pages
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Company filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
4,938,139 shares of common stock, par value $.10 per share,
as of October 31, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Cover Page 2 of 2 Pages
UNITED-GUARDIAN, INC.
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2005 and 2004... 2
Consolidated Balance Sheets -
September 30, 2005 and December 31, 2004.................. 3-4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2005 and 2004............. 5
Consolidated Notes to Financial Statements................. 6-10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10-13
Item 3 - Controls and Procedures...................................... 13-14
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings............................................. 14
Item 2 - Changes in Securities and Use of Proceeds..................... 14
Item 3 - Defaults Upon Senior Securities............................... 14
Item 4 - Submission of Matters to a Vote of Security Holders........... 14
Item 5 - Other Information............................................. 14
Item 6 - Exhibits and Reports On Form 8-K.............................. 14
Signatures................................................................ 15
1
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
------ ------ ------ ------
Revenue:
Net sales $ 9,697,066 $ 8,977,454 $ 3,049,494 $ 2,987,383
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 4,408,053 4,001,219 1,366,493 1,402,404
Operating expenses 1,885,612 1,898,225 560,273 550,738
---------- ---------- ---------- ----------
6,293,665 5,899,444 1,926,766 1,953,142
---------- ---------- ---------- ----------
Income from operations 3,403,401 3,078,010 1,122,728 1,034,241
Other income (expense):
Investment income 235,466 160,267 74,175 53,855
(Loss) gain on sale of marketable securities (113,888) - 343 -
Other (178) (17) (130) -
--------- ---------- --------- ----------
Income before income taxes 3,524,801 3,238,260 1,197,116 1,088,096
Provision for income taxes 1,282,300 1,157,000 421,400 389,000
--------- --------- --------- ---------
Net income $ 2,242,501 $ 2,081,260 $ 775,716 $ 699,096
======== ========= ======== =========
Earnings per common share
(basic and diluted) $ 0.45 $ 0.42 $ 0.16 $ 0.14
========= ========= ========= =========
Weighted average shares - basic 4,934,528 4,927,688 4,937,356 4,929,539
========= ========= ========= =========
Weighted average shares -diluted 4,941,266 4,937,223 4,942,614 4,937,237
========= ========= ========= =========
See consolidated notes to financial statements
2
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2005 2004
------------ -------------
ASSETS (UNAUDITED) (DERIVED FROM AUDITED
FINANCIAL STATEMENTS)
Current assets:
Cash and cash equivalents $ 3,046,631 $ 3,735,945
Temporary investments 698,982 402,288
Marketable securities 6,736,192 6,251,764
Accounts receivable, net of
allowance for doubtful accounts
of $33,971 and $45,000 at
September 30, 2005 and December 31,
2004, respectively 1,546,136 918,085
Inventories (net) 949,998 1,375,880
Prepaid expenses and other
current assets 332,512 515,425
Deferred income taxes 210,817 223,617
----------- -----------
Total current assets 13,521,268 13,423,004
----------- -----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 3,038,127 2,975,305
Building and improvements 2,135,603 2,089,547
Waste disposal plant 133,532 133,532
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5,376,262 5,267,384
Less: Accumulated depreciation 4,418,982 4,269,713
----------- -----------
957,280 997,671
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Other assets 108,680 700
----------- -----------
$ 14,587,228 $ 14,421,375
=========== ===========
See consolidated notes to financial statements
3
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
September 30, DECEMBER 31,
2005 2004
--------------- ------------
LIABILITIES AND (UNAUDITED) (DERIVED FROM AUDITED
STOCKHOLDERS' EQUITY FINANCIAL STATEMENTS)
Current liabilities:
Dividends payable $ - $ 887,677
Accounts payable 207,414 172,320
Accrued expenses 315,177 395,167
Taxes payable 47,749 -
--------- ---------
Total current liabilities 570,340 1,455,164
--------- ---------
Deferred income taxes 10,000 10,000
--------- ---------
Stockholders' equity:
Common stock $.10 par value,
authorized, 10,000,000 shares;
5,000,339 and 4,994,739 shares
issued, respectively, and
4,938,139 and 4,932,539
shares outstanding, respectively 500,034 499,474
Capital in excess of par value 3,776,288 3,756,943
Accumulated other comprehensive loss (65,324) (86,730)
Retained earnings 10,155,520 9,146,154
Treasury stock, at cost; 62,200 shares (359,630) (359,630)
--------- ---------
Total stockholders' equity 14,006,888 12,956,211
--------- ---------
$ 14,587,228 $ 14,421,375
========== ==========
See consolidated notes to financial statements
4
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------
2005 2004
------- -------
Cash flows provided by operating activities:
Net income $ 2,242,501 $ 2,081,260
Adjustments to reconcile net earnings
to net cash flows from operations:
Depreciation and amortization 149,269 150,625
Realized loss on sale of marketable securities 116,512 -
Provision for doubtful accounts (11,029) -
Provision for inventory obsolescence - (91,000)
(Increase) decrease in assets:
Accounts receivable (617,022) (319,194)
Inventories 425,882 (193,548)
Prepaid expenses and other current
and non-current assets 74,933 51,668
Increase (decrease) in liabilities:
Accounts payable 35,094 (111,400)
Accrued expenses and taxes payable (32,241) 86,120
---------- ----------
Net cash provided by operating activities 2,383,899 1,654,531
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (108,878) (121,791)
Net change in temporary investments (296,694) 615,126
Proceeds from sale of marketable securities 4,116,413 2,032,274
Purchase of marketable securities (4,683,147) (2,128,539)
---------- ----------
Net cash (used in) provided by
investing activities (972,306) 397,070
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 19,905 24,183
Dividends paid (2,120,812) (737,736)
---------- ----------
Net cash used in financing activities (2,100,907) (713,553)
---------- ----------
Net (decrease) increase in cash and cash
equivalents (689,314) 1,338,048
Cash and cash equivalents at beginning of period 3,735,945 2,710,029
---------- ----------
Cash and cash equivalents at end of period $ 3,046,631 $ 4,048,077
========== ==========
See consolidated notes to financial statements
5
UNITED-GUARDIAN, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
2005 and the results of operations for the three and nine months ended September
30, 2005 and 2004 and cash flows for the nine months ended September 30, 2005
and 2004. The accounting policies followed by the Company are set forth in the
Company's financial statements included in its December 31, 2004 Annual Report
to Shareholders.
2. The results of operations for the nine months ended September 30, 2005
and 2004 are not necessarily indicative of the results to be expected for the
full year.
3. Stock-Based Compensation: In 2004 the Company approved a new stock
option plan ("2004 Stock Option Plan"). The 1993 Employee Incentive Stock Option
Plan ("EISOP") and the Non-Statutory ("NSSOPD") expired in 2003. No grants were
issued during the nine months ended September 30, 2005 or September 30, 2004.
4. Inventories - Net
Inventories consist of the following: September 30, December 31,
2005 2004
---------- ----------
Raw materials and work in process $ 412,420 $ 332,798
Finished products and fine chemicals 537,578 1,043,082
---------- ----------
$ 949,998 $1,375,880
========== ==========
At September 30, 2005 and December 31, 2004, the Company has reserved
$128,000 for slow moving and obsolete inventory.
5. 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 $983,553 and $1,005,977 for the nine months
ended September 30, 2005 and 2004, respectively. There were no payments for
interest during these periods.
6. Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows:
6
Nine months ended September 30, Three months ended September 30,
2005 2004 2005 2004
------ ------ ------ ------
Net income $2,242,501 $2,081,260 $ 775,716 $ 699,096
---------- ---------- ---------- ----------
Other comprehensive income (loss):
Unrealized (loss) gain on marketable
securities during period ...................... (82,306) (70,866) (38,426) 7,270
Less: reclassification adjustment for
losses (gains) included in net income ......... 116,512 -- (343) --
---------- ---------- ---------- ----------
Other comprehensive income (loss) before tax .... 34,206 (70,866) (38,769) 7,270
Income tax expense (benefit) related to other
comprehensive income ............................ 12,800 (26,400) (14,400) 2,800
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax....... 21,406 (44,466) (24,369) 4,470
---------- ---------- ---------- ----------
Comprehensive income net of tax .................... $2,263,907 $2,036,794 $ 751,347 $ 703,566
========== ========== ========== ==========
Accumulated other comprehensive income (loss) is comprised of unrealized
gains and losses on marketable securities, net of the related tax effect.
7. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share at September 30, 2005 and 2004.
Nine months ended Three months ended
September 30, September 30,
2005 2004 2005 2004
------ ------ ------ ------
Numerator:
Net income $2,242,501 $2,081,260 $ 775,716 $ 699,096
======= ========= ======= =======
Denominator:
Denominator for basic earnings
per share (weighted average
shares) 4,934,528 4,927,688 4,937,356 4,929,539
Effect of dilutive securities:
Employee stock options 6,738 9,535 5,258 7,698
--------- ---------- --------- ----------
Denominator for diluted earnings
per share (adjusted weighted-average
shares) and assumed conversions 4,941,266 4,937,223 4,942,614 4,937,237
========= ========= ========= =========
Basic and diluted earnings per share $ 0.45 $ 0.42 $ 0.16 $ 0.14
========= ========= ========= =========
8. The Company has two reportable business segments: the Guardian
Laboratories Division ("Guardian") conducts research, development and
manufacturing of cosmetic ingredients, personal and health care products,
7
pharmaceuticals and specialty industrial products. Eastern Chemical Corporation
("Eastern"), a wholly-owned subsidiary of the Company, distributes a line of
fine chemicals, solutions, dyes and reagents.
The accounting policies used to develop segment information correspond to
those described in the summary of significant accounting policies as set forth
in the Annual Report for the year ended December 31, 2004. Segment earnings or
loss is based on earnings or loss from operations before income taxes. The
reportable segments are distinct business units operating in different
industries. They are separately managed, with separate marketing and
distribution systems. The following information about the two segments is for
the three and nine month periods ended September 30, 2005 and 2004.
Nine months ended September 30,
2005 2004
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 8,847,905 $ 849,161 $ 9,697,066 $ 8,119,929 $ 857,525 $ 8,977,454
Depreciation and amortization 65,187 - 65,187 70,196 - 70,196
Segment income (loss) before
income taxes* 3,459,359 70,445 3,529,804 3,251,553 (52,620) 3,198,933
Segment assets 2,893,000 378,643 3,271,643 3,018,158 362,946 3,381,104
Capital expenditure 32,825 - 32,825 106,556 - 106,556
Reconciliation to Consolidated Amounts
Income before income taxes
----------------------------
Total earnings for reportable segments $ 3,529,804 $ 3,198,933
Other income, net 121,400 160,250
Corporate headquarters expense (126,403) (120,923)
---------- ----------
Consolidated earnings before income taxes $ 3,524,801 $ 3,238,260
========== ==========
Assets
------
Total assets for reportable segments $ 3,271,643 $ 3,381,104
Corporate headquarters 11,315,585 11,941,802
---------- ----------
Total consolidated assets $14,587,228 $15,322,906
========== ==========
Three months ended September 30,
2005 2004
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 2,793,515 $ 255,979 $ 3,049,494 $ 2,697,595 $ 289,788 $ 2,987,383
Depreciation and amortization 20,437 - 20,437 20,429 - 20,429
Segment income (loss) before
income taxes* 1,131,460 38,492 1,169,952 1,085,557 (6,566) 1,078,991
8
Reconciliation to Consolidated Amounts
Income before income taxes
----------------------------
Total earnings for reportable segments $ 1,169,952 $ 1,078,991
Other income, net 74,388 53,855
Corporate headquarters expense (47,224) (44,750)
---------- ----------
Consolidated earnings before income taxes $ 1,197,116 $ 1,088,096
========== ==========
Other Significant items
-----------------------
Nine months ended September 30,
2005 2004
------------------------------------------ -------------------------------------------
Segment Consolidated Segment Consolidated
Totals Corporate Totals Totals Corporate Totals
------------ ------------ ------------- ------------- ------------ -------------
Expenditures for assets $ 32,825 $ 76,053 $108,878 $106,556 $ 15,235 $121,791
Depreciation and amortization 65,187 84,082 149,269 70,196 80,429 150,625
Geographic Information
----------------------
2005 2004
--------------------------- ---------------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
----------- ------------- ----------- -------------
United States $ 4,608,137 $ 957,280 $ 4,979,126 $ 997,482
France 1,182,796 1,117,867
Other countries 3,906,133 2,880,461
----------- ------------- ----------- -------------
$ 9,697,066 $ 957,280 $ 8,977,454 $ 997,482
=========== ============= =========== =============
Major Customers
---------------
Customer A (Guardian)** $ 3,721,307 $ 3,654,792
Customer B (Guardian)** 1,022,408 959,980
All other customers 4,953,351 4,362,682
----------- -----------
$ 9,697,066 $ 8,977,454
=========== ===========
9
* On January 1, 2005 the Company revised the estimated overhead allocated
to the Eastern Chemical subsidiary due to reductions in personnel and inventory
and an overall downsizing of the Eastern operation. This has resulted in a
reduction in the amount of overhead allocated to Eastern and a commensurate
increase in the amount of overhead being absorbed by the Guardian division. This
has also resulted in an increase in the overhead rate for the Guardian division.
If the current allocation had been used for the Eastern subsidiary in
September 2004, Eastern would have had earnings from operations of $42,381 and
$23,898 for the nine and three months ended September 30, 2004, respectively.
** At September 30, 2005 Customers A and B had balances approximating 37%
and 15% of accounts receivable respectively. At September 30, 2004 Customers A
and B had balances approximating 32% and 16% of accounts receivable
respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-QSB 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 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 principals, 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.
10
OVERVIEW
The Company is a Delaware corporation that operates in two business
segments. Guardian conducts research, product development, manufacturing and
marketing of cosmetic ingredients, personal and health care products,
pharmaceuticals, and specialty industrial products. The products manufactured by
Guardian are marketed through marketing partners, distributors, direct
advertising, mailings, and trade exhibitions. Its most important personal care
product line is its LUBRAJEL(R) line of water based moisturizing and lubricating
gels. It also sells two pharmaceutical products, which are distributed primarily
through drug wholesalers and surgical supply houses. There are also indirect
sales to the Veteran's Administration and other government agencies, and to some
hospitals and physicians.
While the Company does have competition in the marketplace for some of its
products, many of its products or processes are either unique in their field or
have some unique characteristics, and therefore are not in direct competition
with the products or processes of other pharmaceutical, chemical, or health care
companies. Guardian's research and development department is actively working on
the development of new products to expand the Company's personal care line.
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.
Eastern distributes a line of fine organic chemicals, research chemicals,
test solutions, indicators, dyes and reagents. Eastern's products are marketed
through advertising in trade publications and direct mailings. Since the
Company's business activities and marketing efforts over the past several years
have focused increasingly on the Guardian division, the Company has reduced
Eastern's inventory levels in order to make it more marketable in the event the
Company decides to sell it at some future date. This has resulted in some
reduction in sales as compared to previous years. Sales of this division have
also declined as a result of increased competition from new and existing
competitors.
Products manufactured by Guardian are marketed worldwide through the
Company's extensive marketing and distribution arrangements. Approximately half
of Guardian's sales are to foreign customers.
The following discussion and analysis covers material changes in the
financial condition of the Company since year end December 31, 2004, and a
comparison of the results of operations for the three and nine month periods
ended September 30, 2005 and September 30, 2004. This discussion and analysis
should be read in conjunction with "Management's Discussion and Analysis or Plan
of Operation" included in the Company's Form 10-KSB for the year ended December
31, 2004.
RESULTS OF OPERATIONS
Gross revenue from operations
-----------------------------
For the nine month period ended September 30, 2005, net sales increased
$719,612 (8.0%) versus the comparable period in 2004. Guardian had a sales
increase of $727,976 (9%) and Eastern had a sales decrease of $8,364 (1%).
11
For the three month period ended September 30, 2005, net sales increased
$62,111 (2.1%) versus the comparable period in 2004. Guardian had a sales
increase of $95,920 (3.6%) and Eastern had a sales decrease of $33,809 (11.7%)
The increase in Guardian's sales for the nine month period ended September
30, 2005 is believed to be due to (a) an unusually high number of shipments
taking place in January that resulted from some customers requesting that their
orders not be shipped until after the first of the year, and (b) normal
fluctuations in the purchasing patterns of its customers. The decrease in
Eastern's sales is believed to be due to normal fluctuations in the purchasing
patterns of its customers. The increase in Guardian's sales for the three month
period ended September 30, 2005 is believed to be due to (a) an increase in
sales of some of Guardian's Lubrajel products to both new and existing
customers, and (b) normal fluctuations in the purchasing patterns of its
customers. The decrease in Eastern's sales for the three months ended September
30, 2005 is believed to be due to normal fluctuations in the purchasing patterns
of it's customers.
Cost of sales
-------------
Cost of sales as a percentage of sales increased to 45.5% for the nine
months ended September 30, 2005 from 44.6% for the comparable period ended
September 30, 2004.
For the three months ended September 30, 2005 compared to the three months
ended September 30, 2004 cost of sales as a percentage of sales decreased to
44.8% from 46.9%. This decrease is mainly due to the company realizing an
unfavorable production variance in the three months ended September 30, 2004.
Operating Expenses
------------------
Operating expenses decreased $12,613 (0.7%) for the nine months ended
September 30, 2005 compared to the comparable period in 2004. For the three
month period ended September 30, 2005 operating expenses increased $9,535 (1.7%)
when compared to the comparable period ended September 30, 2004.
Investment income
-----------------
Investment income decreased $38,689 (24.1%) for the nine months ended
September 30, 2005 as compared to the comparable period in 2004. This increase
mainly was attributable to the net effect of an increase in income from
securities of $75,199 and the sale of a portfolio of marketable securities,
primarily bonds, the bulk of which had been managed for the Company by Merrill
Lynch. The sale of this portfolio resulted in a realized loss of approximately
$116,000, of which approximately $107,000 had previously been recorded in the
equity section of the balance sheet as an "accumulated other comprehensive
loss". Approximately $108,000 of the above loss was due to the sale of the bond
portfolio managed by Merrill Lynch, which, over the 18 months the company held
it, had realized interest income net of broker fees of approximately $154,000.
Investment income is recorded net of brokerage fees.
12
For the three months ended September 30, 2005 investment income increased
$20,663 (38.4%), which was mainly attributable to increased interest rates and
an increase in market value of some of the investments held by the company.
Provision for income taxes
--------------------------
The provision for income taxes increased $125,300 (10.8%) for the nine
months ended September 30, 2005 when compared to the comparable period in 2004.
This increase was due to (a) increased earnings before taxes of $286,541, and
(b) the adding back of the approximately $116,000 capital loss from the sale of
the Merrill Lynch bond portfolio, which loss is available to offset any realized
capital gains, and any excess may be carried forward for five years following
the year of the loss. Income taxes increased $32,400 (8.3%) for the three months
ended September 30, 2005 compared to comparable period in 2004. This increase is
mainly due to an increase in income before taxes of $109,020.
We had effective income tax rates of 35.2% and 35.8% for the three-months
ended September 30, 2005 and 2004, respectively, and 36.4% and 35.7% for the
nine-months ended September 30, 2005 and 2004, respectively. Differences in the
effective income tax rate from the statutory federal income tax rate arise
primarily from state taxes net of federal benefits and other differences.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $11,967,840 at December 31, 2004 to
$12,950,928 at September 30, 2005. The current ratio increased from 9.2 to 1 at
December 31, 2004 to 23.7 to 1 at September 30, 2005. The increase in current
ratio was primarily due to the net effect of a decrease in dividends payable
offset by the decrease in inventories, along with increases in accounts
receivable. The Company has no commitments for any further significant capital
expenditures during the remainder of 2005, and believes that its working capital
is and will continue to be sufficient to support its operating requirements.
The company generated cash from operations of $2,383,899 and $1,654,531 for
the nine months ended September 30, 2005 and September 30, 2004 respectively.
The increase was primarily due to the net income from operations and the net
effect of a decrease in inventory offset by an increase in accounts receivable.
During the nine month period ended September 30, 2005, $972,306 was used in
investment activities, as compared to the nine month period ended September 30,
2004 when $397,070 was provided by investing activities. The change is mainly
due to the net effect of the sale (primarily bonds) and purchases (primarily
bond funds) of marketable securities.
Cash used in financing activities was $2,100,907 and $713,553 for the nine
months ended September 30, 2005 and September 30, 2004 respectively. The
increase was due primarily to an increase in dividends paid during the nine
months ended September 30, 2005.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Within 90 days prior to the filing of this Quarterly Report on Form 10-QSB
the Company's principal executive officer and principal financial officer
evaluated the effectiveness of the design and operation of Company's disclosure
13
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) and concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is accumulated and communicated to the Company's
management, including its officers, as appropriate to allow timely decisions
regarding required disclosure, and are effective to ensure that such information
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
(b) Changes in Internal Controls
The Company's principal executive officer and principal financial officer
have also concluded there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS: NONE
ITEM 2 - CHANGES IN 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
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
31.1 Certification of Alfred R. Globus, Chairman and Chief
Executive Officer of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Kenneth H. Globus, President and Chief
Financial Officer of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Alfred R. Globus, Chairman and Chief Executive
Officer of the Company, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Kenneth H. Globus, President and 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
September 30, 2005. It was filed on August 8, 2005 and related to the issuance
of an earnings release by the Company on August 5, 2005.
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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/ Alfred R. Globus
--------------------
Alfred R. Globus
Chief Executive Officer
By: /s/ Kenneth H. Globus
---------------------
Kenneth H. Globus
Chief Financial Officer
Date: November 10, 2005
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