# United Guardian Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [United Guardian Inc](/companies/ug.md) (CIK 101295)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 09:00 ET
- Period: 2024-09-30
- Accession: 0001171843-24-006259
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/101295/000117184324006259/ug20240930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/101295/000117184324006259/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $3.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $9.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $4.5m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $111.1k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $325.7k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $949.1k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $3.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $230.8k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $720.5k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $865.5k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $2.7m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.60 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $3.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $117.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $2.8m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-09-30 | $2.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $12.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $13.3m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $1.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $1.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $11.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,759 characters.

### 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; changes in our distribution partners; 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, medical lubricants, and sexual wellness products. Prior to July 1, 2023, the Company manufactured and reported sales of a line of specialty industrial products; however, this product line was discontinued after the second quarter of 2023 due to low sales volume with no growth prospects. In October 2023, the Company entered into an agreement with Brenntag Specialties, a global market leader in chemicals and ingredients distribution, for the marketing of the Company’s new line of sexual wellness ingredients, specifically called the “Natrajel®” line of products, in the United States, Canada, Mexico, Central America and South America. Although there were no sales of these products during 2023 or year-to-date in 2024, the Company anticipates that it will begin manufacturing and reporting sales of this new line of products in 2025.

The Company also conducts research and product development. The Company’s research and development department also 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. 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 and packaged for the Company by an outside contract manufacturer.

The Company’s most important product line is its Lubrajel® line of multifunctional hydrogels, which are designed to provide hydration, sensory enhancement, lubrication, 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.

Renacidin and the Company’s other pharmaceutical product, Clorpactin® WCS-90, are distributed through full-line drug wholesalers and marketed only in the United States. Those wholesalers in turn sell the products to pharmacies, hospitals, nursing homes, and other long-term care facilities, and to 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 multifunctional hydrogels designed mainly to provide sensory enhancement and lubrication to medical device products, are sold directly to medical customers, or to contract manufacturers employed by these medical customers.

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.

As long as a valid purchase order has been received and future collection of the sale amount is reasonably assured, the Company recognizes revenue from sales of its products when those products are shipped, which is when the Company’s performance obligation is satisfied. The Company’s cosmetic ingredients are shipped “Ex-Works” from the Company’s facility in Hauppauge, NY, and the risk of loss and responsibility for the shipment passes to the customer upon shipment. Sales of the Company’s non-pharmaceutical medical products are deemed final upon shipment, and there is no obligation on the part of the Company to repurchase or allow the return of these goods unless they are defective. Sales of the Company’s pharmaceutical products are final upon shipment unless (a) they are found to be defective; (b) the product is damaged in shipping; (c) the product cannot be sold because it is too close to its expiration date; or (d) the product has expired (but it is not more than one year after the expiration date). This return policy conforms to standard pharmaceutical industry practice. The Company estimates an allowance for outdated material returns based on previous years’ historical returns of its pharmaceutical products.

In recent years the Company has elected to rely on trade secret protection to protect its intellectual property for the 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®, Natrajel®, Renacidin®, and Clorpactin® trademarks.

### CRITICAL ACCOUNTING POLICIES

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, 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, 2023, there have been no significant changes to the assumptions and estimates related to those critical accounting policies.

The following discussion and analysis cover material changes in the financial condition of the Company since the year ended December 31, 2023, and a comparison of the results of operations for the three and nine months ended September 30, 2024 and September 30, 2023. 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, 2023. All references in this quarterly report to “sales” or “Sales” shall mean Net Sales unless specified otherwise.

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

### RESULTS OF OPERATIONS

### Net Sales

Net sales for the third quarter of 2024 increased by $2,595 (less than 1%) when compared with the same period in 2023. Net sales for the first nine months of 2024 increased by $1,427,121(17%) as compared with the corresponding period in 2023. The increase in sales for the third quarter of 2024 and the first nine months of 2024 were attributable to changes in sales of the following product lines:

### Cosmetic ingredients:

**a) Third quarter sales**: For the third quarter of 2024, the Company’s sales of cosmetic ingredients increased by $92,409 (8%) when compared with the third quarter of 2023. The increase in third quarter sales was due primarily to an increase of $245,168 (25%) in sales of the Company’s cosmetic products to ASI. Based on information provided to the Company by ASI, the majority of the increase in sales of the Company’s products were to customers in China.

Third quarter sales in 2024 to the Company’s four other distributors, as well as to two direct cosmetic ingredient customers, decreased by a net of $152,759 (70%) compared with the third quarter of 2023. This sales decline was due to reformulations and overstocking that is now corrected.

**b) Nine-month sales:** For the first nine months of 2024, the Company’s sales of cosmetic ingredients increased by $1,853,477 (68%) when compared with the same period in 2023. This increase was due primarily to an increase of $2,238,221 (109%) in sales to ASI. Based on information provided to the Company by ASI, the increase in sales was due to two main factors 1) higher restocking rate in Asia Pacific after a long destocking period in 2023 and 2) regaining market share at certain key accounts in China.

Cosmetic ingredient sales for the first nine months of the year to the Company’s four other cosmetic distributors, as well as to two direct cosmetic customers, decreased by a net of $384,744 (57%) compared with the same period in 2023. This sales decline was due to reformulations and overstocking in 2023.

### Pharmaceuticals:

Because there are fees, rebates and allowances associated with sales of the Company’s two pharmaceutical products, Renacidin and Clorpactin, 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-month period ended September 30, 2024 decreased by $181,540 (12%) compared with the corresponding period in 2023, while gross sales for the nine-month period ended September 30, 2024 decreased by $502,500 (11%). The decrease in sales for the three- and nine-month periods was due primarily to decreases of $123,412 (10%) and $436,581 (11%), respectively, in gross sales of Renacidin due to the temporary shutdown of the Company’s contract manufacturer during the latter part of 2023 and the beginning of 2024. During this time, the Company was unable to fill full orders of Renacidin and was allocating product to all its pharmaceutical distributors. The Company began filing orders in full towards the end of March 2024.

The Company typically experiences fluctuations in sales of its pharmaceutical products due to the timing of orders from its distributors. The Company has invested additional resources to better understand the market for its pharmaceutical products and will continue to invest resources to broaden market awareness.

Net sales of the Company’s pharmaceutical products for the three- and nine-month periods ended September 30, 2024 saw a similar pattern, decreasing by $74,386 (6%) for the three-month period and decreasing by $441,224 (11%) for the nine-month period, with those decreases due primarily to the reason noted above.

The difference between the change in net sales compared with the change in gross sales for these products is due to a combination of the change in gross sales of those products combined with changes in pharmaceutical sales allowances related to these products. Typically, these allowances have a direct relationship with the sales of the Company’s pharmaceutical products. For the three and nine-month period ended September 30, 2024, sales allowances related to the Company’s pharmaceutical products decreased by $107,154 (41%) and $61,277 (7%), respectively, and was primarily related to a decrease in VA and Medicare CDGP Program rebates.

### Medical lubricants:

Sales of the Company’s medical lubricants decreased by $15,428 (2%) for the three-month period ended September 30, 2024, compared with the same period in 2023, while sales for the nine-month period increased by $66,462 (4%), compared with the same period in 2023. The changes in medical lubricant sales for the three and nine-month periods were primarily attributable to normal customer ordering patterns.

### Industrial and other products:

Sales of the Company's industrial products, as well as other miscellaneous products, for the nine-month period ended September 30, 2024, decreased by $51,594 (100%), when compared with the corresponding period in 2023. The decrease in sales was due to the discontinuation of this product line after the second quarter of 2023. There were no sales of this product line in the third quarters of both 2024 and 2023.

### Cost of Sales

Cost of sales as a percentage of sales decreased to 46% in the third quarter of 2024, down from 57% in the third quarter of 2023. For the first nine months of 2024, cost of sales as a percentage of sales decreased to 47%, down from 52% in 2023. The decreases in both periods were the result of the Company’s cosmetic ingredient sales represented a larger percentage of the Company’s total sales for both the three- and nine-month periods ended September 30, 2024 compared with the same periods in 2023. These products carry a higher gross margin than the Company’s pharmaceutical products. In addition, there were lower per unit overhead costs in 2024, which was the result of an increase in production of cosmetic products due to higher demand in 2024 compared to the same periods in 2023.

### Operating Expenses

Operating expenses, consisting of selling and general and administrative expenses, increased by $102,583 (21%) for the third quarter of 2024 compared with the equivalent period in 2023 and increased by $182,186 (12%) for the first nine months of 2024, compared with the equivalent period in 2023. The increase in operating expenses for both periods was due primarily to increases in fees paid to the Company’s Board of Directors and increases in payroll and payroll related expenses.

### Research and Development Expenses

Research and development expenses increased by $12,931 (13%) for the third quarter of 2024, and decreased by $28,115 (8%) for the first nine months of 2024 compared with the same periods in 2023. The increase in the third quarter was primarily due to an increase in payroll and payroll-related expenses.

### Investment Income

Investment income increased by $20,252 (25%) and $115,750 (64%) for the three- and nine-month periods, respectively, ending September 30, 2024, compared with the equivalent periods in 2023. The increases in both periods were primarily due to an increase in interest income from investments in U. S. Treasury Bills and Certificates of Deposit compared with the dividend income on the Company’s equity and fixed income mutual funds recorded during the same periods in 2023.

The change in the makeup of the Company’s investment income was attributable to the Company repositioning its marketable securities portfolio late in the second quarter of 2023. During that time, the Company liquidated most of its holdings of equity and fixed income mutual funds. The Company used the proceeds from these sales to take advantage of higher interest rates by purchasing U.S. Treasury Bills.

### Net Gain (Loss) on Marketable Securities

The net gain (loss) on marketable securities increased from a loss of $14,357 for the quarter ended September 30, 2023, to a gain of $47,223 for the quarter ended September 30, 2024. For the nine-month periods ended September 30, 2023 and 2024, the net gain on marketable securities increased from $65,823 to $79,218, respectively. These increased gains were primarily due to the factors discussed above regarding the Company’s repositioning of its marketable securities portfolio. For a significant part of 2023, the Company’s marketable securities portfolio was primarily invested in equity and fixed income mutual funds, and for the three- and nine-month periods ended September 30, 2024, these funds were invested primarily in U.S. Treasury Bills and Certificates of Deposit, which are recorded at amortized cost and are not subject to the same market volatility that the equity and fixed income mutual funds experience. The Company’s management and Board of Directors continue to closely monitor the Company's investment portfolio, and have made and will continue to make any changes they believe may be necessary or appropriate 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 approximately 21% for the first nine months of 2024 and 2023. The Company’s tax rate is expected to remain at 21% for the current fiscal year.

### LIQUIDITY AND CAPITAL RESOURCES

Working capital decreased from $10,718,457 at December 31, 2023 to $10,609,401 at September 30, 2024, a decrease of $109,056. The current ratio decreased from 8.0 to 1 at December 31, 2023 to 6.7 to 1 at September 30, 2024. The decrease in working capital and the current ratio was primarily due to an increase in accounts payable which was partially offset by an increase in the combination of cash and marketable securities.

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 is in the process of upgrading its building sprinkler system and has incurred costs of $155,000 to date and expects to incur additional costs of $23,000 during the fourth quarter of 2024. The project is expected to be completed by the end of 2024.

The Company is in the process of replacing the roof on a portion of its facility in Hauppauge, NY. at an estimated cost of $250,000. The project is due to be completed by the end of 2024.

The Company generated cash from operations of $3,196,954 and $2,016,910 for the nine months ended September 30, 2024 and September 30, 2023, respectively. The increase in cash from operations was primarily due to an increase in net income, combined with an increase in accounts payable.

Cash used in investing activities for the nine-month period ended September 30, 2024 was $6,241,837. Cash provided by investing activities for the nine-month period ended September 30, 2023 was $4,728,156 The fluctuation was due to the following: 1) during the first nine months of 2023, the Company liquidated a majority of its marketable equity and fixed income investments and repurchased U.S. Treasury Bills with maturities of less than 3 months, which were classified as cash and cash equivalents, and 2) during the first nine months of 2024, the Company liquidated a significant portion of its 3-month U.S Treasury Bills and reinvested in longer term U.S Treasury Bills, which are now classified as marketable securities.

Cash used in financing activities was $2,756,323 and $459,387 for the nine months ended September 30, 2024 and September 30, 2023, respectively. The increase was due to an increase in the dividends paid from $0.10 per share in 2023 to $0.60 per share in 2024.

The Company expects to continue to use its cash to make dividend payments, to purchase marketable securities, and to 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 effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

### CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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

## Controls and procedures

As filed, 2,039 characters.

(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.

(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.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001171843-24-006259. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.