U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
----------------
TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-7855
----------
UNITED-GUARDIAN, INC.
----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-1719724
- -------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
230 Marcus Boulevard, Hauppauge, New York 11788
-----------------------------------------------
(Address of Principal Executive Offices)
(516) 273-0900
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
---------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Check whether the registrant 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
4,883,139
-------------------------------------------
<PAGE>
UNITED-GUARDIAN, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Statements of Earnings -
Three Months Ended
March 31, 1999 and 1998 2
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 3-4
Consolidated Statements of Cash Flows -
Three Months Ended
March 31, 1999 and 1998 5
Consolidated Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Part II Other Information 11
1
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
---- ----
Net sales $ 2,413,975 $ 2,388,899
---------- ----------
Costs and expenses:
Cost of sales 1,312,765 1,433,155
Operating expenses 483,129 493,399
---------- ----------
1,795,894 1,926,554
---------- ----------
Earnings from operations 618,081 462,345
Other income (expense):
Interest expense (73) (296)
Investment income 18,973 15,024
Gain on sale of assets -- 8,000
Other (45) (15)
---------- ---------
Earnings before income taxes 636,936 485,058
Provision for income taxes 236,800 180,900
---------- ---------
Net earnings $ 400,136 $ 304,158
========== =========
Earnings per common share
(Basic and Diluted) $ .08 $ .06
========== =========
Basic weighted average shares 4,883,139 4,878,470
========== =========
Diluted weighted average shares 4,900,456 4,890,300
========== =========
See notes to financial statements.
2
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
---------- -----------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 1,973,265 $ 1,320,610
Marketable securities 81,750 604,314
Accounts receivable
(less allowance for doubtful
accounts of $ 52,818 at
March 31, 1999 and $52,894
December 31, 1998) 1,475,496 1,300,118
Inventories 1,089,657 1,150,132
Prepaid expenses and other
current assets 185,142 169,786
Deferred income taxes 176,318 176,318
---------- ----------
Total current assets 4,981,628 4,721,278
---------- ----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 2,407,936 2,407,200
Building and improvements 1,970,385 1,964,646
Waste disposal plant 133,532 133,532
---------- ----------
4,580,853 4,574,378
Less: Accumulated depreciation 3,104,211 3,041,694
---------- ----------
1,476,642 1,532,684
---------- ----------
Other assets:
Processes and patents, net 177,724 190,685
Split dollar life insurance 348,161 348,161
Other 2,025 1,525
---------- ----------
527,910 540,371
---------- ----------
$ 6,986,180 $ 6,794,333
========== ==========
See notes to financial statements.
3
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
LIABILITIES AND (UNAUDITED)
STOCKHOLDERS' EQUITY
Current liabilities:
Dividends payable $ -- $ 341,820
Accounts payable 263,755 317,973
Accrued expenses and other 114,722 119,855
Taxes payable 200,816 5,524
Current portion of long-term
debt 10,048 10,000
----------- -----------
Total current liabilities 589,341 795,172
----------- -----------
Long-term debt, net of current
portion 13,651 16,229
----------- -----------
Deferred income taxes 10,000 10,000
----------- -----------
Stockholders' equity:
Common stock $.10 par value,
authorized 10,000,000 shares;
issued and outstanding,
4,883,139 shares 488,314 488,314
Capital in excess of par value 3,330,874 3,330,874
Accumulated other comprehensive
(loss) (210) (330)
Retained earnings 2,554,210 2,154,074
---------- -----------
Total stockholders' equity 6,373,188 5,972,932
---------- -----------
$ 6,986,180 $ 6,794,333
========== ===========
See notes to financial statements.
4
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 400,136 $ 304,158
Adjustments to reconcile net earnings
to net cash flows provided by
operations:
Depreciation and amortization 75,478 102,095
Net gain on sale of equipment -- (8,000)
Provision for doubtful accounts (76) --
Unrealized gain on marketable
securities 120 --
(Increase) decrease in assets:
Accounts receivable (175,302) (198,410)
Inventories 60,475 98,899
Prepaid expenses and other assets (15,856) (96,295)
Increase (decrease) in liabilities:
Accounts payable (54,218) (50,932)
Accrued expenses and other 190,159 168,405
-------- ---------
Net cash provided by operating
activities 480,916 319,920
-------- ---------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (6,475) (29,798)
Proceeds from the sale of equipment -- 8,000
Purchase of marketable securities net (509) (3,782)
Proceeds from marketable securites 523,073 --
-------- --------
Net cash provided by (used in)
investing activities 516,089 (25,580)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (2,530) ---
Proceeds from exercise of stock options -- 5,156
Dividends paid (341,820) (292,610)
-------- -------
Net cash used in financing
activities (344,350) (287,454)
-------- -------
Net increase in cash and cash equivalents 652,655 6,886
Cash and cash equivalents at beginning
of period 1,320,610 822,596
-------- --------
Cash and cash equivalents at
end of period $ 1,973,265 $ 829,482
========= =========
See notes to financial statements.
5
<PAGE>
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, 1999 and December 31, 1998 and the results of operations and
cash flows for the three months ended March 31, 1999 and 1998. The
accounting policies followed by the Company are set forth in the
Company's financial statements included in the December 31, 1998 Annual
Report.
2. The results of operations for the three months ended March
31, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
3. 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 interest were $ 73 and $296 for the three
months ended March 31, 1999 and March 31, 1998 respectively.
Cash payments for income taxes were $41,508 and $86,566 and for
the three months ended March 31, 1999 and March 31, 1998 respectively.
4. Comprehensive Income
The components of comprehensive income are as follows:
1999 1998
------- -------
Net income $ 400,136 $ 304,158
Change in unrealized (loss) on
marketable securities 120 --
------- -------
Comprehensive income $ 400,256 $ 304,158
The components of accumulated other comprehensive (loss) are
unrealized losses on marketable securities of ($210) and $0 at March 31,
1999 and 1998 respectively.
5. NATURE OF BUSINESS AND SEGMENT INFORMATION
The Company has the following two reportable business segments:
Guardian Laboratories and Eastern Chemical. The Guardian segment conducts
research, development and manufacturing of pharmaceuticals, medical
devices, cosmetics, products and proprietary specialty chemical products.
The Eastern segment distributes fine chemicals, solutions, dyes and
reagents.
The accounting polices used to develop segment information
correspond to those described in the summary of significant accounting
policies as set forth in the December 31, 1998 annual report. 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 months ended March 31, 1999 and
1998.
6
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings from external customers $ 1,981,825 $ 462,150 $ 2,413,975 $ 2,001,359 $ 387,540 $ 2,388,899
Depreciation and amortization 41,565 - 41,565 68,917 - 68,917
Segment earnings (loss) before
income taxes 654,979 5,971 660,950 590,866 (86,754) 504,112
Segment assets 2,734,473 582,511 3,316,984 2,912,200 651,929 3,564,129
Expenditure for segment assets 736 - 736 10,590 - 10,590
Reconciliation to Consolidated Amounts
Earnings before income taxes
- ----------------------------
Total earnings for reportable segments $ 660,950 $ 504,112
Other earnings 18,855 22,713
Corporate headquarters expense ( 42,869) ( 41,767)
--------- ---------
Consolidated earnings before income taxes $ 636,936 $ 485,058
Assets
- ------
Total assets for reportable segments $ 3,316,984 $ 3,564,129
Corporate headquarters 3,669,196 2,695,894
--------- ---------
Total consolidated assets $ 6,986,180 $ 6,260,023
========= =========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Other Significant Items
- -----------------------
1999 1998
-------------------------------------- --------------------------------------
Segment Consolidated Segment Consolidated
Totals Adjustments Totals Totals Adjustments Totals
---------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense $ - $ 73 $ 73 $ - $ 296 $ 296
Expenditures for assets 736 5,739 6,475 10,590 19,208 29,798
Depreciation and amortization 41,565 33,913 75,478 68,917 33,178 102,095
</TABLE>
<TABLE>
<CAPTION>
Geographic Information
- ----------------------
1999 1998
---------------------- ----------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
United States $ 1,489,556 $ 1,654,367 $ 1,372,533 $ 1,994,618
France 287,247 383,069
Other countries 637,172 633,297
--------- --------- --------- ---------
$ 2,413,975 $ 1,654,367 $ 2,388,899 $ 1,994,618
========= ========= ========= =========
Major Customers
- ---------------
Customer A (Guardian) $ 491,215 $ 487,586
Customer B (Guardian) 260,269 372,523
All other customers 1,662,491 1,528,790
--------- ---------
$ 2,413,975 $ 2,388,899
========= =========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $25,076 (1%) for the three months ended
March 31, 1999 as compared to the comparable period in 1998. The Guardian
Laboratories division ("Guardian") had a sales decrease of $19,534 (1%)
while the Eastern Chemical subsidiary ("Eastern") had a sales increase of
$44,610 (11.5%). The decrease in Guardian's sales and the increase in
Eastern's sales were mainly due to normal fluctuations in the purchasing
patterns of its customers.
Cost of sales as a percentage of net sales decreased from 60.0%
for the three months ended March 31, 1998 to 54.4% in the comparable
period in 1999. The decrease was mainly due to a $100,000 charge for a
write-down in value of the Eastern inventory in the first quarter of 1998
and a lower cost for one of the Company's largest volume raw materials in
1999 compared to 1998.
Operating expenses decreased $10,270 (2.1%) in the three months
ended March 31, 1999 when compared to the comparable period in 1998. This
decrease was mainly due to a decrease in amortization of the Sonarite
technology, which was fully amortized in 1998.
Investment income increased $3,949 (26.3%) for the three months
ended March 31, 1999 when compared to the comparable period in 1998. This
increase is primarily due to an increase in short-term invested balances.
The Company realized a gain on sale of assets amounting to
$8,000 for the three months ended March 31, 1998. There was no gain or
loss from the sale of assets for the comparable period in 1999.
The provision for income taxes increased from $180,900 for the
three months ended March 31, 1998 to $236,800 for the comparable period
in 1999. This increase is mainly due to the increase in earnings before
income taxes of $151,878 (31.3%) between years. The Company's effective
rate of 37% remained unchanged for both periods.
Liquidity and Capital Resources
Working capital increased from $3,926,106 at December 31, 1998
to $4,392,287 at March 31, 1999. The current ratio increased from 5.9 to
1 at December 31, 1998 to 8.5 to 1 at March 31, 1999. The increase in
working capital is primarily due to increases in cash provided by
operations. The Company believes that its working capital is and will
continue to be sufficient to support its operating requirements and its
need for capital expenditures.
Cash flows from operating activities increased $160,996 (50.3%)
for the three months ended March 31, 1999 when compared to the comparable
period in 1998. This increase is mainly due to the increased earnings in
1999 as compared to 1998.
Cash flows from investing activities increased $541,669 for the
three months ended March 31, 1999 when compared to the comparable period
in 1998. This increase is mainly due to proceeds from marketable
securities.
Cash flows from financing activities decreased $56,896 (19.8%)
in the three months ended March 31, 1999 when compared to the comparable
period in 1998. This decrease is primarily due to the increase in cash
dividends paid.
9
<PAGE>
Impact of the "Year 2000" Issue
The Registrant has evaluated the impact of the Year 2000 ("Y2K")
issue on its business and does not expect to incur any significant costs
associated with Year 2000 compliance or that the Year 2000 issue will
have a material impact on the Registrant's business, results of
operations, or financial condition. In 1998 the Registrant purchased new
computer equipment to enable it to run a new Y2K compliant version of its
accounting software. This software has been certified by the vendor to be
Y2K compliant, and the Registrant has independently verified that the
date fields have been expanded to four digits instead of two, and is
satisfied that the software will function properly after December 31,
1999. All of Registrant's inventory, purchase orders, sales, receivables,
and general ledger are handled by this Y2K compliant software. The
underlying operating system on which this software works has been
certified Y2K compliant. Registrant's cost to bring its computer systems
into Y2K compliance during 1998 was approximately $30,000.
The Registrant is not aware of any problems that its customers
or suppliers may have in regard to the Y2K issue. Registrant does not at
the present time conduct any direct data transfer with any of its
customers or suppliers that would be affected by their failure to be Y2K
compliant, and has no reason to believe that any Y2K compliance problems
that any of its suppliers or customers might have will have any material
adverse impact on the Registrant. The Registrant is in the process of
trying to obtain second sources of supply for as many of its raw
materials as possible before the end of 1999, and believes that it
currently has enough alternative suppliers for its key products that it
will not be materially affected by the failure of one or more of its
current raw material suppliers to become Y2K compliant. In March, 1999
the Registrant requested information on Y2K compliance from those
suppliers and customers with which it considers itself to have a material
relationship and where their failure to attain Y2K compliance could have
a material impact on the Registrant. Registrant had requested that
responses be submitted by March 31, 1999, and to date has received most
of the responses. All of those customer and vendors that have responded
to date have indicated that Y2K compliance either has already been
achieved or will be achieved by June 30, 1999.
Registrant has investigated its key non-information technology
systems for Y2K compliance and has determined that they are either
already Y2K compliant or will be so by the end of the year without
material expense to the Registrant. The following material
non-information technology system providers have already given the
Registrant assurances that the systems or services they provide are Y2K
compliant: Registrant's primary bank; the company that handles
Registrant's payroll; the company that handles its security system; and
the Registrant's registrar and stock transfer agent. The company that
handles Registrant's telephone system has assured the Registrant that,
with the exception of its voice mail system, which will be made Y2K
compliant by mid-1999 at no cost to the Registrant, all of the rest of
Registrant's telephone system is already Y2K compliant.
Registrant believes that it has already made all of the material
expenditures necessary to attain Y2K compliance internally, and does not
expect to expend any material amounts during 1999 or thereafter for this
purpose.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6 (b) Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
UNITED-GUARDIAN, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED-GUARDIAN, INC.
(Registrant)
By: Alfred R. Globus
Alfred R. Globus
Chief Executive Officer
By: Kenneth H. Globus
Kenneth H. Globus
Chief Financial Officer
Date: May 7, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000101295
<NAME> UNITED-GUARDIAN, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,973,265
<SECURITIES> 81,750
<RECEIVABLES> 1,528,314
<ALLOWANCES> 52,818
<INVENTORY> 1,089,657
<CURRENT-ASSETS> 4,981,628
<PP&E> 4,580,853
<DEPRECIATION> 3,104,211
<TOTAL-ASSETS> 6,986,180
<CURRENT-LIABILITIES> 589,341
<BONDS> 0
0
0
<COMMON> 488,314
<OTHER-SE> 3,330,874
<TOTAL-LIABILITY-AND-EQUITY> 6,986,180
<SALES> 2,413,975
<TOTAL-REVENUES> 2,413,975
<CGS> 1,312,765
<TOTAL-COSTS> 1,312,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 636,936
<INCOME-TAX> 236,800
<INCOME-CONTINUING> 400,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,136
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
