United-Guardian(UG) - 2025 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION ITEM 1. Condensed Financial Statements This section presents the unaudited condensed financial statements for the periods ended June 30, 2025 and 2024, with accompanying notes Statements of Income The company's net sales and net income declined significantly in the three and six months ended June 30, 2025 Statements of Income (Unaudited) - Key Figures | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,838,225 | $3,390,205 | $5,319,352 | $6,645,149 | | Total costs and expenses | $2,142,772 | $2,275,527 | $4,012,977 | $4,503,864 | | Income from operations | $695,453 | $1,114,678 | $1,306,375 | $2,141,285 | | Net income | $626,826 | $956,225 | $1,187,721 | $1,881,667 | | Earnings per common share (basic and diluted) | $0.14 | $0.21 | $0.26 | $0.41 | - Net sales decreased by 16% for the three months ended June 30, 2025, and by 20% for the six months ended June 30, 2025, compared to the respective periods in 2024[11] - Net income decreased by 34.4% for the three months ended June 30, 2025, and by 36.9% for the six months ended June 30, 2025, compared to the respective periods in 2024[11] Balance Sheets Total assets and stockholders' equity decreased from December 31, 2024, to June 30, 2025 Balance Sheets (Unaudited) - Key Figures | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $12,466,928 | $12,665,551 | | Total assets | $13,394,352 | $13,797,335 | | Total current liabilities | $1,853,471 | $1,914,469 | | Total liabilities | $1,931,777 | $1,914,469 | | Total stockholders' equity | $11,462,575 | $11,882,866 | - Total assets decreased by approximately $402,983 from December 31, 2024, to June 30, 2025[13] - Total stockholders' equity decreased by approximately $420,291 from December 31, 2024, to June 30, 2025[15] Statements of Changes in Stockholders' Equity Stockholders' equity declined in the first half of 2025 as dividend payments outpaced net income Statements of Changes in Stockholders' Equity (Unaudited) - Key Figures | Metric | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Balance, January 1 | $11,882,866 | $11,388,582 | | Net income (six months) | $1,187,721 | $1,881,667 | | Dividends declared and paid (six months) | $(1,607,893) | $(1,148,468) | | Balance, June 30 | $11,462,575 | $12,121,669 | - Total stockholders' equity decreased from $11,882,866 at January 1, 2025, to $11,462,575 at June 30, 2025, primarily due to dividends declared and paid exceeding net income[17] Statements of Cash Flows Cash from operations decreased significantly, while investing activities generated a net inflow in H1 2025 Statements of Cash Flows (Unaudited) - Six Months Ended June 30 | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $625,323 | $1,968,250 | | Net cash provided by (used in) investing activities | $885,686 | $(657,533) | | Net cash used in financing activities | $(1,618,183) | $(1,148,468) | | Net (decrease) increase in cash and cash equivalents | $(107,174) | $162,249 | | Cash and cash equivalents at end of period | $1,768,481 | $8,405,371 | - Net cash provided by operating activities significantly decreased from $1,968,250 in H1 2024 to $625,323 in H1 2025, primarily due to a decrease in net income[21][118] - Investing activities shifted from a net cash outflow of $657,533 in H1 2024 to a net cash inflow of $885,686 in H1 2025, driven by excess proceeds from marketable securities sales[21][119] - Net cash used in financing activities increased due to higher dividend payments ($0.35/share in H1 2025 vs $0.25/share in H1 2024) and payment of accrued dividends[21][120] Notes to Condensed Financial Statements These notes detail the company's business operations, accounting policies, and financial instrument specifics 1. Business The company develops and markets specialty ingredients for cosmetics, pharmaceuticals, and medical lubricants - United-Guardian, Inc. manufactures, markets, and develops specialty cosmetic ingredients (e.g., Lubrajel® hydrogels), pharmaceutical products (e.g., Renacidin®), medical lubricants, and sexual wellness ingredients[23][24] - The company entered a distribution agreement with Brenntag Specialties in October 2023 for its new Natrajel® line of sexual wellness ingredients in the Americas, with manufacturing and sales anticipated to begin in the second half of 2025[23] - R&D focuses on new and unique specialty cosmetic and sexual wellness ingredients, medical lubricants, and product modifications, prioritizing natural and environmentally friendly raw materials[24] 2. Basis of Presentation Interim financial statements are prepared according to US GAAP and Regulation S-X - Interim condensed financial statements are prepared in accordance with US GAAP for interim financial information and Regulation S-X, with all necessary adjustments included for fair presentation[25] - Results for the three and six months ended June 30, 2025, are not necessarily indicative of future results for the full year[25] 3. Segment Information The company operates as a single reportable segment with consolidated financial information review - The Company operates as a single operating and reportable segment, with the President (CODM) reviewing consolidated financial information and allocating resources based on metrics like net income[26] - Segment revenue, profit/loss, and significant expenses are consistent with consolidated results[27] 4. Impact of Global Supply Chain Instability, Inflation and Tariffs The company is monitoring trade policies and tariffs, particularly from China, which could impact business - The Company is monitoring trade policies and tariffs, particularly those on imports from China, which could significantly impact business, financial condition, and results of operations[28][29] - New tariffs imposed on July 31, 2025, could make products less competitive, reduce gross margins, and potentially decrease demand, especially in China, as reflected in H1 2025 cosmetic product sales[28][29] - While most raw materials are sourced domestically, three suppliers obtain materials from China, and one direct raw material supplier is in China; however, these are not large quantities and are not expected to materially impact pricing[31] 5. Use of Estimates Financial statements rely on management estimates for key areas like credit losses and inventory valuation - Financial statements require management to make estimates and assumptions, including for allowance for credit losses, inventory obsolescence, accrued distribution fees, outdated material returns, marketable securities impairment, and overhead allocation[33] - Actual results may differ from these estimates[33] 6. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with maturities of three months or less - Cash equivalents include highly liquid investments with original maturities of three months or less[35] - Amounts exceeding FDIC and SIPC limits were $397,000 and $639,000 respectively at June 30, 2025[35] Cash and Cash Equivalents | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Demand Deposits | $629,658 | $404,801 | | Money Market Funds | $1,138,823 | $1,470,854 | | Total | $1,768,481 | $1,875,655 | 7. Accounts Receivable and Reserves An allowance for credit losses is recognized based on the Current Expected Credit Losses (CECL) model - The Company recognizes an allowance for credit losses on accounts receivable based on ASC Topic 326 (CECL), reflecting expected credit losses over the asset's life[37][38] Allowance for Credit Losses | Date | Allowance Amount | | :--- | :--- | | June 30, 2025 | $21,628 | | December 31, 2024 | $14,342 | 8. Revenue Recognition Revenue is recognized from product sales when control transfers to the customer, net of deductions - Revenue is recognized in accordance with ASC Topic 606 when a customer obtains control of promised goods or services, primarily from product sales[39] - Sales are reported net of deductions (e.g., chargebacks, rebates, distribution fees, discounts, outdated product returns), which are estimated and recorded in the same period as revenue[40] - For the six months ended June 30, 2025, approximately 23% of total sales were to customers outside the U.S., up from 15% in the prior year, though a significant portion of U.S. sales to ASI are ultimately shipped to foreign customers, with China representing a decreasing share of ASI's foreign sales (40% in H1 2025 vs 50% in H1 2024)[49][50][51] Disaggregated Sales by Product Class | Product Class | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Cosmetic ingredients | $896,549 | $1,419,374 | $1,595,546 | $3,295,856 | | Pharmaceuticals | $1,451,679 | $1,413,664 | $2,620,137 | $2,363,987 | | Medical lubricants | $489,997 | $557,167 | $1,103,669 | $985,306 | | Total Net Sales | $2,838,225 | $3,390,205 | $5,319,352 | $6,645,149 | Disaggregated Sales by Geographic Region | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | United States | $2,346,526 | $2,808,237 | $4,103,793 | $5,627,173 | | Other countries | $491,699 | $581,968 | $1,215,559 | $1,017,976 | | Total Sales | $2,838,225 | $3,390,205 | $5,319,352 | $6,645,149 | 9. Accounting for Financial Instruments – Credit Losses The company maintains a credit loss allowance for trade receivables based on historical and economic data - The Company maintains an allowance for credit losses on trade receivables based on CECL, considering historical experience, customer creditworthiness, and economic trends[52][53][55] - Credit risk is concentrated among a small number of customers, making the Company vulnerable to changes in their financial position[53] 10. Marketable Securities Marketable securities include equity mutual funds, U.S. Treasury Bills, and Certificates of Deposit - Marketable securities include equity mutual funds (fair value), U.S. Treasury Bills, and Certificates of Deposit (amortized cost)[57] - Proceeds from sales and redemptions of marketable securities were $7,301,264 in H1 2025, recognizing $1,507 in realized losses, compared to $775,000 in H1 2024 with no realized gains or losses[61] Net Gains (Losses) on Marketable Securities | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30 | $24,576 (gain) | $(9,501) (loss) | | Six Months Ended June 30 | $36,926 (gain) | $31,995 (gain) | Marketable Securities Holdings | Category | June 30, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :--- | :--- | :--- | | Equity and other mutual funds | $710,829 | $663,682 | | U.S. Treasury Bills | $5,941,815 | $6,288,943 | | Fixed income Certificates of Deposit | - | $570,000 | | Total marketable securities | $6,652,644 | $7,522,625 | 11. Inventories Inventories are valued at the lower of average cost or net realizable value - Inventories are valued at the lower of cost and net realizable value, using the average cost method[64] Inventories | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Raw materials | $384,387 | $448,113 | | Work in process | $18,286 | $58,699 | | Finished products | $1,129,144 | $945,183 | | Total inventories | $1,531,817 | $1,451,995 | | Reserve for slow moving and obsolete inventory | $30,006 | $32,792 | 12. Income Taxes The company's effective income tax rate was 21% for the first half of 2025 and 2024 - The Company's effective income tax rate was 21% for both the second quarter and first half of 2025 and 2024, and is expected to remain at 21% for the current fiscal year[114] Provision for Income Taxes | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Federal income taxes - current | $(51,536) | $302,100 | $56,324 | $472,040 | | State income taxes - current | - | - | $813 | $225 | | Federal income taxes - deferred | $215,312 | $(53,141) | $253,703 | $17,428 | | Total provision for income taxes | $163,776 | $248,959 | $310,840 | $489,693 | 13. Defined Contribution Plan The company sponsors a 401(k) plan with employer matching and discretionary contributions - The Company sponsors a 401(k) defined contribution plan with a dollar-for-dollar employer matching contribution up to 4% of employee pay, with immediate vesting[66] - Discretionary contributions are also made based on a safe-harbor formula, with vesting over six years[67] DC Plan Contributions (Six Months Ended June 30) | Type | 2025 | 2024 | | :--- | :--- | :--- | | Accrued contributions | $57,500 | $54,500 | | Discretionary contributions paid | $115,000 | $109,000 | 14. Other Information (Accrued Expenses) Total accrued expenses decreased primarily due to lower accrued bonuses and 401(k) contributions - Total accrued expenses decreased from $1,467,933 at December 31, 2024, to $1,297,869 at June 30, 2025, primarily due to lower accrued bonuses and 401(k) contributions[70] Accrued Expenses | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Bonuses | $101,500 | $290,000 | | Distribution fees | $448,511 | $441,397 | | Payroll and related expenses | $144,842 | $73,915 | | Reserve for outdated material | $295,469 | $276,732 | | Company 401(k) contribution | $57,500 | $115,000 | | Audit fee | $46,115 | $73,364 | | Annual report expenses | $41,722 | $83,238 | | Sales rebates | $93,827 | $90,904 | | Insurance | $50,497 | - | | Other | $17,886 | $23,383 | | Total accrued expenses | $1,297,869 | $1,467,933 | 15. Recent Accounting Pronouncements The company has adopted or is evaluating several new accounting standards updates - ASU 2024-03 (Disaggregation of Income Statement Expenses) is effective for annual periods after December 15, 2026, and interim periods after December 15, 2027[71] - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for fiscal years beginning after December 31, 2024; the Company implemented this on January 1, 2025, for additional disclosures in its 2025 10-K[72] - ASU 2023-07 (Improvements to Reportable Segment Disclosures) is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024; the Company adopted this on January 1, 2024[73] 16. Concentrations of Credit Risk Credit risk is highly concentrated among a small number of major distributors - The Company's accounts receivable expose it to credit risk, with a high concentration among a small number of cosmetic ingredient and pharmaceutical distributors[75] - For the three months ended June 30, 2025, major distributors accounted for 79% of gross sales and 86% of outstanding accounts receivable[76] - For the six months ended June 30, 2025, major distributors accounted for 73% of gross sales and 86% of outstanding accounts receivable[77] 17. Supplier Concentration The company relies heavily on three raw material suppliers and one contract manufacturer - Three major raw material suppliers collectively accounted for approximately 85% of raw material purchases in H1 2025 (79% in H1 2024)[78] - The Company relies on one contract manufacturer for its pharmaceutical product, Renacidin, making it vulnerable to disruptions in that manufacturer's operations[78] 18. Related-Party Transactions Related-party transactions include payments to a director's accounting firm and a former president - No consulting payments were made to former President Ken Globus in H1 2025, as his agreement expired May 31, 2024[79] - Payments to accounting firm PKF O'Connor Davies (where a director is a partner) were $4,000 in H1 2025, down from $10,750 in H1 2024[80] 19. Earnings Per Share Earnings per share decreased significantly in the first half of 2025 compared to the prior year - EPS decreased significantly for both the three-month and six-month periods ended June 30, 2025, compared to 2024[82] Earnings Per Share (Basic and Diluted) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30 | $0.14 | $0.21 | | Six Months Ended June 30 | $0.26 | $0.41 | 20. Dividends The company declared and paid cash dividends in the first half of 2025 - The Board declared a cash dividend of $0.35 per share on January 27, 2025, paid on February 18, 2025[83] - Total dividends declared in H1 2025 were $1,608,012, with $1,607,893 paid[83] - In H1 2024, a dividend of $0.25 per share was declared, totaling $1,148,580, with $1,148,468 paid[85] 21. Subsequent Events A cash dividend was declared in July 2025 after the reporting period - On July 11, 2025, the Board declared a cash dividend of $0.25 per share, paid on August 1, 2025[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The company's financial performance declined due to reduced cosmetic sales, alongside discussions of liquidity and operational risks Executive Overview The company specializes in cosmetic ingredients and pharmaceuticals and is expanding into sexual wellness - United-Guardian, Inc. specializes in manufacturing cosmetic ingredients, pharmaceuticals, medical lubricants, and sexual wellness ingredients through its Guardian Laboratories division[90] - The company expanded into the sexual wellness market with the Natrajel line via a distribution agreement with Brenntag Specialties in October 2023, with sales expected in H2 2025[91] - Distribution channels are being expanded globally, including adding South Korea for personal care products and extending medical product distribution with Azelis Group NV in the UK and Ireland[92][93] Critical Accounting Policies Key accounting policies remain unchanged, with a focus on revenue recognition and credit risk - Critical accounting policies include revenue recognition, concentration of credit risk, investments, inventory, and income taxes, with no significant changes to assumptions or estimates since December 31, 2024[94] - The company recognizes an allowance for credit losses for financial assets at amortized cost based on expected credit losses over the asset's life, in accordance with ASU-2016-13[96] Results of Operations Net sales and income decreased due to lower cosmetic ingredient sales, particularly in China Net Sales Net sales declined in Q2 and H1 2025, driven by a sharp drop in cosmetic ingredient sales - Net sales decreased by $551,980 (16%) in Q2 2025 and by $1,325,797 (20%) in H1 2025 compared to the same periods in 2024[97] - Cosmetic ingredients sales decreased by 37% in Q2 2025 and 52% in H1 2025, primarily due to softer demand in China (trade uncertainty, tariffs) and excess inventory held by distributor ASI[97][99] - Pharmaceutical net sales increased by 3% in Q2 2025 and 11% in H1 2025, driven by increased Renacidin orders from a new customer, partially offset by fluctuations in Clorpactin WCS-90 sales[102][103][104] - Medical lubricant sales decreased by 12% in Q2 2025 due to reduced orders from an Indian customer with excess inventory, but increased by 12% in H1 2025 due to higher orders from a Chinese customer[106] Cost of Sales Cost of sales as a percentage of net sales remained relatively stable compared to the prior year - Cost of sales as a percentage of net sales slightly increased to 47% in Q2 2025 from 46% in Q2 2024, but slightly decreased to 46% in H1 2025 from 47% in H1 2024[109] Operating Expenses Operating expenses increased due to higher sales, marketing, and payroll-related costs - Operating expenses increased by $91,273 (15%) in Q2 2025 and $155,143 (13%) in H1 2025, primarily due to increases in sales and marketing, and payroll and payroll-related expenses[110] Research and Development Expenses R&D expenses showed mixed results, decreasing in Q2 but increasing for the first half of 2025 - R&D expenses decreased by 3% in Q2 2025 (due to lower accrued bonuses) but increased by 4% in H1 2025 (due to higher payroll and related expenses)[111] Investment Income Investment income decreased due to lower interest rates and a smaller investment base - Investment income decreased by 29% in Q2 2025 and 22% in H1 2025, attributed to lower interest rates and a decrease in invested funds[112] Net gain (loss) on Marketable Securities The company recorded a net gain on marketable securities, improving from a loss in the prior year's quarter - Net gain on marketable securities improved from a $9,501 loss in Q2 2024 to a $24,576 gain in Q2 2025[113] - For H1 2025, the net gain increased to $36,926 from $31,995 in H1 2024[113] Provision for Income Taxes The effective income tax rate remained consistent at 21% for all reported periods - The effective income tax rate remained consistent at 21% for both Q2 and H1 2025 and 2024, and is expected to remain so for the current fiscal year[114] Liquidity and Capital Resources Working capital decreased, but the current ratio improved, and liquidity is deemed sufficient - Working capital decreased by $137,625 to $10,613,457 at June 30, 2025, primarily due to a decrease in cash and cash equivalents and marketable securities[115] - The current ratio increased from 6.6:1 at December 31, 2024, to 6.7:1 at June 30, 2025, mainly due to a decrease in accrued expenses[115] - The Company believes its working capital is sufficient for the next twelve months and plans to use cash for organic growth, strategic transactions, and inflation mitigation, as well as continued dividend payments and marketable securities purchases[117][121] Off Balance-Sheet Arrangements The company has no material off-balance sheet arrangements - The Company has no off-balance sheet transactions that have, or are reasonably likely to have, a material impact on its financial condition or results of operations[122] Contractual Obligations and Commitments As a smaller reporting company, disclosure of contractual obligations is not required - Information regarding contractual obligations and commitments is not required for smaller reporting companies[123] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, market risk disclosures are not required - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[124] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and reported no material changes to internal controls (a) Disclosure Controls and Procedures Disclosure controls and procedures were evaluated and found to be effective as of June 30, 2025 - Management, including the Principal Executive Officer and CFO, evaluated the disclosure controls and procedures and determined they were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[125] (b) Changes in Internal Control Over Financial Reporting No material changes to internal control over financial reporting occurred during the reporting period - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period covered by the report[126] Part II. OTHER INFORMATION Item 1. Legal Proceedings This section states that there are no legal proceedings to report - There are no legal proceedings to disclose[128] Item 1A. Risk Factors The company faces significant risks from global supply chain instability, inflation, and tariffs, especially with China - The Company is actively monitoring trade policy and tariff announcements, especially those concerning China, which have the greatest potential to significantly impact its business[128] - Significant tariffs or restrictions on Chinese imports could make products less cost-competitive, reduce gross margins, and decrease demand, as already reflected in cosmetic product sales in H1 2025[129] - The overall impact of tariffs remains uncertain, depending on factors like duration, expansion, retaliatory measures, inflationary effects, and the effectiveness of the Company's responses[133] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates no unregistered sales of equity securities to report - There are no unregistered sales of equity securities or use of proceeds to disclose[134] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - There are no defaults upon senior securities to disclose[134] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures to report[134] Item 5. Other Information This section states that there is no other information to report - There is no other information to disclose[134] Item 6. Exhibits This section lists the exhibits filed, including Sarbanes-Oxley certifications and XBRL documents - Exhibits include certifications from the President/Principal Executive Officer and Chief Financial Officer (Sections 302 and 906 of Sarbanes-Oxley Act of 2002)[134] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) and the Cover Page Interactive Data File are also filed[134] Signatures The report is certified by the company's authorized officers as of August 6, 2025 - The report is signed by Donna Vigilante, President, and Andrea Young, Chief Financial Officer, on behalf of United-Guardian, Inc. on August 6, 2025[136][137]