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 March 31, 2006
--------------
[ ] 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:
4,942,139 shares of common stock, par value $.10 per share, as of
May 1, 2006
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 Months Ended March 31, 2006 and 2005 (unaudited).... 2
Consolidated Balance Sheets -
March 31, 2006 (unaudited) and December 31, 2005.......... 3-4
Consolidated Statements of Cash Flows -
Three Months ended March 31, 2006 and 2005 (unaudited).... 5
Consolidated Notes to (unaudited) Financial Statements..... 6-11
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 11-14
Item 3 - Controls and Procedures...................................... 14
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings............................................. 15
Item 2 - Changes in Securities and Use of Proceeds..................... 15
Item 3 - Defaults Upon Senior Securities............................... 15
Item 4 - Submission of Matters to a Vote of Security Holders........... 15
Item 5 - Other Information............................................. 15
Item 6 - Exhibits and Reports On Form 8-K.............................. 15
Signatures................................................................ 15
1
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2006 2005
------ ------
Revenue:
Net sales $ 2,864,797 $ 3,880,117
---------- ----------
Costs and expenses:
Cost of sales 1,352,611 1,768,767
Operating expenses 641,124 668,693
---------- ----------
1,993,735 2,437,460
---------- ----------
Income from operations 871,062 1,442,657
Other income (expense):
Investment income 80,423 66,339
Loss on sale of marketable securities - (114,231)
Other - (48)
--------- ----------
Income before income taxes 951,485 1,394,717
Provision for income taxes 329,500 539,000
--------- ---------
Net income $ 621,985 $ 855,717
======== =========
Earnings per common share
(basic and diluted) $ .13 $ 0.17
========= =========
Weighted average shares - basic 4,940,183 4,932,539
========= =========
Weighted average shares - diluted 4,944,311 4,940,272
========= =========
See consolidated notes to financial statements
2
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2006 2005
------------ -------------
ASSETS (UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents $ 2,456,204 $ 3,425,593
Temporary investments 699,942 699,363
Marketable securities 7,063,070 7,066,797
Accounts receivable, net of
allowance for doubtful accounts
of $37,000 and $47,500 at
March 31, 2006 and December 31,
2005 respectively 1,332,145 1,083,992
Inventories (net) 1,769,204 1,031,563
Prepaid expenses and other
current assets 402,015 440,380
Deferred income taxes 231,189 217,389
----------- -----------
Total current assets 13,953,769 13,965,077
----------- -----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 3,085,882 3,068,050
Building and improvements 2,133,422 2,133,422
Waste disposal plant 133,532 133,532
----------- -----------
5,421,836 5,404,004
Less: Accumulated depreciation 4,503,860 4,455,524
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917,976 948,480
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Other assets 108,430 108,680
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$ 14,980,175 $ 15,022,237
=========== ===========
See consolidated notes to financial statements
3
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2006 2005
--------------- ------------
(UNAUDITED) (AUDITED)
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Dividends payable $ - $1,086,391
Accounts payable 442,312 148,051
Accrued expenses 464,517 448,990
Taxes payable 121,443 -
--------- ---------
Total current liabilities 1,028,272 1,683,432
--------- ---------
Deferred income taxes 59,817 59,817
--------- ---------
Stockholders' equity:
Common stock $.10 par value,
authorized, 10,000,000 shares;
5,004,339 and 5,000,339 shares
issued, respectively, and
4,942,139 and 4,938,139
shares outstanding, respectively 500,434 500,034
Capital in excess of par value 3,792,478 3,778,838
Accumulated other comprehensive loss (107,292) (84,365)
Retained earnings 10,066,096 9,444,111
Treasury stock, at cost; 62,200 shares (359,630) (359,630)
--------- ---------
Total stockholders' equity 13,892,086 13,278,988
--------- ---------
$ 14,980,175 $ 15,022,237
========== ==========
See consolidated notes to financial statements
4
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------
2006 2005
------- -------
Cash flows provided by operating activities:
Net income $ 621,985 $ 855,717
Adjustments to reconcile net earnings
to net cash flows from operations:
Depreciation and amortization 48,336 49,820
Realized loss on sale of marketable securities - 116,855
Reversal of provision for doubtful accounts (10,500) (11,029)
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (237,653) (1,083,016)
Inventories (737,641) 350,752
Prepaid expenses and other current
and non-current assets 38,615 156,057
Accounts payable 294,261 185,619
Accrued expenses and taxes payable 136,970 331,223
---------- ----------
Net cash provided by operating activities 154,373 951,998
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (17,832) (56,017)
Net change in temporary investments (579) (1,738)
Purchase of marketable securities (33,000) (4,284,726)
Proceeds from sale of marketable securities - 3,465,351
---------- ----------
Net cash used in investing activities (51,411) (877,130)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 14,040 -
Dividends paid (1,086,391) (887,677)
---------- ----------
Net cash used in financing activities (1,072,351) (877,677)
---------- ----------
Net (decrease) increase in cash and cash
equivalents (969,389) (812,809)
Cash and cash equivalents at beginning of period 3,425,593 3,735,945
---------- ----------
Cash and cash equivalents at end of period $ 2,456,204 $ 2,923,136
========== ==========
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 March 31,
2006 and the results of operations for the three months ended March 31, 2006 and
2005. The accounting policies followed by the Company are set forth in the
Company's financial statements included in its Annual Report to Shareholders for
the fiscal year ended December 31, 2005.
2. The results of operations for the three months ended March 31, 2006 and
2005 are not necessarily indicative of the results to be expected for the full
year.
3. Stock-Based Compensation: At March 31, 2006, the Company had two
stock-based employee compensation plans, which are more fully described in the
Company's Annual Report on Form 10-KSB, for the year ended 2005. As permitted
under Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-based Compensation ("FAS 123"), through December 31, 2005, the Company
elected to follow the guidance of APB Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"), and Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of APB Opinion No. 25 ("FIN 44"), in accounting
for the Company's stock-based employee compensation arrangements. Accordingly,
no compensation cost was recognized for any of the Company's fixed stock options
granted to employees when the exercise price of each option equaled or exceeded
the fair value of the underlying common stock as of the grant date for each
stock option. Changes in the terms of stock option grants, such as extensions of
the vesting period or changes in the exercise price, resulted in variable
accounting in accordance with APB 25. Accordingly, compensation expense was
measured in accordance with APB 25 and recognized over the vesting period. If
the modified grant was fully vested, any additional compensation costs were
recognized immediately. The Company accounted for equity instruments issued to
non-employees in accordance with the provisions of FAS 123.
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), Share-Based Payment ("FAS 123R"), which replaced
FAS 123 and supersedes APB 25 and FIN 44. FAS 123R requires that the fair value
all share-based payments to employees, including grants of employee stock
options, be recognized as expense in the financial statements. The pro forma
disclosures previously permitted under FAS 123 are no longer an alternative to
financial statement recognition. The Company adopted the provisions of FAS 123
on January 1, 2006 using the modified prospective application method of adoption
which requires the Company to record compensation cost related to unvested stock
awards as of December 31, 2005 by recognizing the unamortized grant date fair
value of these awards over the remaining service periods of those awards with no
change in historical reported earnings. Awards granted after December 31, 2005
are valued at fair value in accordance with provisions of FAS 123R and
recognized on a straight line basis over the service periods of each award. The
estimated forfeiture rates for the first quarter of 2006 were based on the
Company's historical experience. Upon adoption of FAS 123R the Company elected
to continue using the Black-Scholes option pricing model.
All of the Company's stock options were fully vested as of December 31,
2005. At March 31, 2006 the Company had 4,300 share-based awards that are
outstanding and exercisable, with a weighted average exercise price of $3.29, an
aggregate intrinsic value of $28,327, and weighted average remaining term of
5.78 years.
6
As of March 31, 2006 there was no remaining unrecognized compensation cost
related to the nonvested share-based compensation arrangements granted under the
Company's plans.
The Company did not record any compensation expense during the three-months
ended March 31, 2006 under the provisions of FAS 123R.
Cash received from option exercise under all share-based payment
arrangements for the three-months ended March 31, 2006, was $14,040.
The following table illustrates the effect on net income and income per
share for the three-months ended March 31, 2005 if the Company had applied the
fair value recognition provisions of FAS 123 since the original effective date
of FAS 123 to stock-based employee compensation for options granted under the
Company's arrangements as well as to the arrangement of the Company's
subsidiaries:
Three-Months Ended
March 31, 2005
--------------
Net income as reported $855,717
Add back (deduct): Total stock-based employee
compensation expense determined under APB 25 for
all awards, net of related tax effects (1) --
Deduct: Total stock-based employee compensation
expense determined under fair value-based method
for all awards, net of related tax effects (1) --
Pro forma net income $855,717
=======
Income per share:
Basic--as reported $ .17
Basic--pro forma $ .17
Diluted--as reported $ .17
Diluted--pro forma $ .17
The Company did not grant any options under the plans during the three
months ended March 31, 2006 and 2005.
4. Marketable Securities
Unrealized
March 31, 2006 Cost Fair Value Gain/(Loss)
------------------ ---------- ---------- -----------
Available for Sale:
U.S. Treasury and agencies $2,046,900 $2,030,829 $ (16,071)
Corporate debt securities 900,594 894,792 (5,802)
Fixed income mutual funds 4,060,272 3,911,136 (149,136)
Equity and other mutual funds 226,594 226,313 (281)
---------- ----------- -----------
7,234,360 7,063,070 (171,290)
========== =========== ===========
7
Unrealized
December 31, 2005 Cost Fair Value Gain/(Loss)
------------------ ---------- ---------- -----------
Available for Sale:
U.S. Treasury and agencies $2,046,900 $2,028,984 $ (17,916)
Corporate debt securities 900,595 892,110 (8,485)
Fixed income mutual funds 4,028,072 3,928,513 (99,559)
Equity and other mutual funds 225,793 217,190 (8,603)
---------- ----------- -----------
$7,201,360 $7,066,797 $ (134,563)
========== =========== ===========
5. Inventories - Net
Inventories consist of the following: March 31, December 31,
2006 2005
---------- ----------
Raw materials and work in process $ 349,455 $ 376,308
Finished products and fine chemicals 1,419,749 655,255
---------- ----------
$1,769,204 $1,031,563
========== ==========
At March 31, 2006 and December 31, 2005, the Company has reserved $108,000
for slow moving and obsolete inventory.
6. 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 $49,802 and $38,174 for the three months ended
March 31, 2006 and 2005, respectively. There were no payments for interest
during these periods.
7. Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows:
Three months ended March 31,
2006 2005
------ ------
Net income $ 621,985 $ 855,717
---------- ----------
Other comprehensive income (loss):
Unrealized (loss) gain on marketable
securities during period ...................... (36,727) (99,193)
Less: reclassification adjustment for net
losses included in net income ................. - 116,855
---------- ----------
Other comprehensive (loss) income before tax .... (36,727) 17,662
Income tax expense (benefit) related to other
comprehensive income ............................ (13,800) 6,600
---------- ----------
Other comprehensive (loss) income, net of tax....... (22,927) 11,062
---------- ----------
Comprehensive income net of tax .................... $ 599,058 $ 866,779
========== ==========
8
Accumulated other comprehensive income (loss) is comprised of unrealized
gains and losses on marketable securities, net of the related tax effect.
8. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share at March 31, 2006 and 2005.
Three months ended
March 31,
2006 2005
------ ------
Numerator:
Net income $ 621,985 $ 855,717
======= =========
Denominator:
Denominator for basic earnings
per share (weighted average
shares) 4,940,183 4,932,539
Effect of dilutive securities:
Employee stock options 4,128 7,733
--------- ---------
Denominator for diluted earnings
per share (adjusted weighted-average
shares) and assumed conversions 4,944,311 4,940,272
========= =========
Basic and diluted earnings per share $ 0.13 $ 0.17
========= =========
9. 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,
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, 2005. 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 month period ended March 31, 2006 and 2005.
Three months ended March 31,
2006 2005
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 2,581,034 $ 283,763 $ 2,864,797 $ 3,567,748 $ 312,369 $ 3,880,117
Depreciation and amortization 22,168 - 22,168 21,335 - 21,335
9
Segment income before income
taxes 887,193 22,334 909,527 1,470,057 12,274 1,482,331
Segment assets 3,292,436 445,742 3,738,178 3,362,005 377,467 3,739,472
Capital expenditure 16,713 - 16,713 11,662 - 11,662
Reconciliation to Consolidated Amounts
Income before income taxes
----------------------------
Total earnings for reportable segments $ 909,527 $ 1,482,331
Other income, net 80,423 (47,940)
Corporate headquarters expense (38,465) (39,674)
---------- ----------
Consolidated earnings before income taxes $ 951,485 $ 1,394,717
========== ==========
Assets
------
Total assets for reportable segments $ 3,738,178 $ 3,739,472
Corporate headquarters 11,241,997 11,177,847
---------- ----------
Total consolidated assets $14,980,175 $14,917,319
========== ==========
Other Significant items
-----------------------
Three months ended March 31,
2006 2005
------------------------------------------ -------------------------------------------
Segment Consolidated Segment Consolidated
Totals Corporate Totals Totals Corporate Totals
------------ ------------ ------------- ------------- ------------ -------------
Capital expenditures $ 16,713 $ 1,119 $ 17,832 $ 11,662 $ 44,355 $ 56,017
Depreciation and amortization 22,168 26,168 48,336 21,335 28,485 49,820
Geographic Information
----------------------
2006 2005
--------------------------- ---------------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
----------- ------------- ----------- -------------
United States $ 1,377,758 $ 917,976 $ 2,130,315 $ 1,003,870
France 245,600 471,888
Other countries 1,241,439 1,277,914
----------- ------------- ----------- -------------
$ 2,864,797 $ 917,976 $ 3,880,117 $ 1,003,870
=========== ============= =========== =============
10
Major Customers
---------------
Customer A (Guardian)** $ 1,128,726 $ 1,176,586
Customer B (Guardian)** 168 847 404,941
All other customers 1,567,224 2,298,590
----------- -----------
$ 2,864,797 $ 3,880,117
=========== ===========
** At March 31, 2006 Customers A and B had balances approximating 29% and
13% of net accounts receivable respectively. At March 31, 2005 Customers A and B
had balances approximating 26% and 4% of net 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.
OVERVIEW
The Company is a Delaware corporation that operates in two business
segments. Guardian conducts research, product development, manufacturing and
11
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 the year ended December 31, 2005, and a
comparison of the results of operations for the three month periods ended March
31, 2006 and March 31, 2005. 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, 2005.
RESULTS OF OPERATIONS
Gross revenue from operations
-----------------------------
For the three month period ended March 31, 2006, net sales decreased
$1,015,320 (26.2%) versus the comparable period in 2005. Guardian had a sales
decrease of $986,714 (27.7%) and Eastern had a sales decrease of $28,606 (9.2%).
The decrease in Guardian's sales for the three month period ended March 31,
2006 is due to a number of factors. The most important factor contributing to
the decrease in sales in the first quarter of 2006 than the first quarter of
2005 was a price increase for the company's pharmaceutical products that was
12
implemented on March 1, 2005, which resulted in an unusually high volume of
sales of the company's pharmaceutical products in the first quarter of 2005 in
anticipation of the price increase, a situation which was not repeated in the
first quarter of 2006. In addition, the first quarter of 2005 experienced an
unusual number of orders that customers had requested not be shipped out at the
very end of 2004. This same situation did not recur at the end of 2005.
The decrease in Eastern's sales is believed to be due to normal
fluctuations in the purchasing patterns of its customers.
Cost of sales
-------------
Cost of sales as a percentage of sales increased to 47.2% for the three
months ended March 31, 2006 from 45.6% for the comparable period ended March 31,
2005. This increase is due to an increase in standard overhead rates for
Guardian that resulted primarily from increases in insurance and payroll and
payroll related expenses.
Operating Expenses
------------------
Operating expenses decreased $27,569 (4.1%) for the three months ended
March 31, 2006 compared to the comparable period in 2005. This decrease was
mainly attributable to a reduction in the company's bad debt reserve.
Other income
------------
Investment income increased to $80,423 from a loss of $47,940 for the three
month period ended March 31, 2006 and March 31, 2005 respectively, an increase
of $128,363 (267.8%) This increase was mainly attributable to the net effect of
an increase in income from investments of $14,084 in 2006 and the sale of a
portfolio of marketable securities in the first quarter of 2005, primarily
bonds, the bulk of which had been managed for the Company by a financial
institution. The sale of this portfolio in 2005 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 a financial institution, 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.
Provision for income taxes
--------------------------
The provision for income taxes decreased $209,500 (38.9%) for the three
months ended March 31, 2006 when compared to the comparable period in 2005. This
decrease was due to (a) decreased earnings before taxes of $443,232 in 2006, and
(b) the adding back of the approximately $116,000 capital loss from the sale of
the bond portfolio in 2005, which loss will be available to offset any realized
capital gains in 2005 and any excess may be carried forward for five years
following the year of the loss.
13
We had effective income tax rates of 34.6% and 38.6% for the three-months
ended March 31, 2006 and 2005, 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 $12,281,645 at December 31, 2005 to
$12,925,497 at March 31, 2006. The current ratio increased from 8.3 to 1 at
December 31, 2005 to 13.6 to 1 at March 31, 2006. The increase in current ratio
was primarily due to the net effect of a decrease in dividends payable offset by
increases in inventories, increases in accounts receivable and accounts payable.
The Company has no commitments for any further significant capital expenditures
during the remainder of 2006, 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 $154,373 and $951,998 for the
three months ended March 31, 2006 and March 31, 2005 respectively. The decrease
was primarily due to the decrease in net income from operations and the net
effect of an increase in inventory.
During the three month period ended March 31, 2006 $51,411 was used in
investment activities, as compared to the three month period ended March 31,
2005 when $877,130 was used in investing activities. The change is mainly due to
the net effect of the sale (primarily bonds) and purchases (primarily bond
funds) of marketable securities during the three months ending March 31, 2005.
Cash used in financing activities was $1,072,351 and $877,677 for the three
months ended March 31, 2006 and March 31, 2005 respectively. The increase was
due primarily to an increase in dividends paid during the three months ended
March 31, 2006.
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
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.
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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
March 31, 2006. It was filed on March 24, 2006 and related to the issuance of an
earnings release by the Company on March 24, 2006.
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: May 10, 2006
15