U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
- --------- Exchange Act of 1934
For the quarterly period ended September 30, 1999
----------------------
_______ Transition report under Section 13 or 15(d) of the Exchange Act
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 September 30, 1999
-------------------
4,889,139
- -------------------------------------------------------------------------
<PAGE>
UNITED-GUARDIAN, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Statements of Earnings -
Three and Nine Months Ended
September 30, 1999 and 1998 2
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 3-4
Consolidated Statements of Cash Flows -
Nine Months Ended
September 30, 1999 and 1998 5
Consolidated Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-12
Part II. Other Information 12
1
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
Net sales $ 7,093,503 $ 6,605,874 $ 2,127,486 $ 2,106,279
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 3,786,891 3,848,171 1,168,119 1,224,411
Operating expenses 1,541,776 1,446,513 494,635 472,675
--------- --------- --------- ---------
5,328,667 5,294,684 1,662,754 1,697,086
--------- --------- --------- ---------
Earnings from
operations 1,764,836 1,311,190 464,732 409,193
Other income (expense):
Interest expense (327) (391) (254) (95)
Investment Income 62,311 36,435 20,050 9,283
Gain on sale of assets - 28,000 - -
Other (72) (15) - -
--------- --------- --------- --------
Earnings before
income taxes 1,826,748 1,375,219 484,528 418,381
Provision for
income taxes 681,400 522,500 180,800 159,300
--------- --------- --------- ---------
Net earnings $ 1,145,348 $ 852,719 $ 303,728 $ 259,081
========= ========= ========= =========
Earnings per common
share - Basic and
Diluted $ 0.23 $ 0.17 $ 0.06 $ 0.05
========= ========= ========= =========
Basic weighted average
shares 4,884,568 4,879,769 4,887,378 4,881,422
========= ========= ========= =========
Diluted weighted
average shares 4,902,309 4,901,604 4,905,588 4,892,493
========= ========= ========= =========
See notes to financial statements.
2
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -------------
ASSETS (UNAUDITED) (DERIVED FROM AUDITED
FINANCIAL STATEMENTS)
Current assets:
Cash and cash equivalents $ 1,842,444 $ 1,320,610
Investments - marketable securities 1,088,173 604,314
Accounts receivable
(less allowance for doubtful
accounts of $52,434 at
September 30,1999 and $52,894
December 31, 1998) 1,144,867 1,300,118
Inventories 1,169,110 1,150,132
Prepaid expenses and other
current assets 189,595 169,786
Deferred income taxes 176,318 176,318
----------- -----------
Total current assets 5,610,507 4,721,278
----------- -----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 2,469,892 2,407,200
Building and improvements 1,977,922 1,964,646
Waste disposal plant 133,532 133,532
----------- -----------
4,650,346 4,574,378
Less: Accumulated depreciation 3,244,633 3,041,694
----------- -----------
1,405,713 1,532,684
----------- -----------
Other assets:
Processes and patents, net 151,801 190,685
Split dollar life insurance 348,161 348,161
Other 1,000 1,525
----------- -----------
500,962 540,371
----------- -----------
$ 7,517,182 $ 6,794,333
=========== ===========
See notes to financial statements.
3
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31,
1999 1998
--------------- ------------
LIABILITIES AND (UNAUDITED) (DERIVED FROM AUDITED
STOCKHOLDERS' EQUITY FINANCIAL STATEMENTS)
Current liabilities:
Accounts payable $ 194,106 $ 317,973
Dividends payable --- 341,820
Accrued expense and other 162,610 119,855
Taxes payable 4,391 5,524
Current portion of long-term
debt 10,144 10,000
--------- ---------
Total current liabilities 371,251 795,172
--------- ---------
Long-term debt, net of current
portion 8,602 16,229
--------- ---------
Deferred income taxes 10,000 10,000
--------- ---------
Stockholders' equity:
Common stock $.10 par value,
authorized 10,000,000 shares,
issued and outstanding
4,889,139 and 4,883,139 shares 488,914 488,314
Capital in excess of par value 3,343,024 3,330,874
Accumulated other comprehensive
loss (4,031) (330)
Retained earnings 3,299,422 2,154,074
--------- ---------
Total stockholders' equity 7,127,329 5,972,932
--------- ---------
$ 7,517,182 $ 6,794,333
========= =========
See notes to financial statements.
4
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
September 30,
-------------
1999 1998
------- -------
Cash flows provided by operating activities:
Net earnings $ 1,145,348 $ 852,719
Adjustments to reconcile net earnings
to net cash flows from operations:
Depreciation and amortization 241,823 308,788
Gain on sale of equipment - (28,000)
Loss on sale of marketable securites 3,214 --
Provision for doubtful accounts (460) 19,958
Provision for inventory obsolescence 10,000 115,000
(Increase) decrease in assets:
Accounts receivable 155,711 (134,677)
Inventories (28,978) 68,122
Prepaid expense and other assets (19,284) (57,907)
Increase (decrease) in liabilities:
Accounts payable (123,867) (107,055)
Accrued expenses and other,
and taxes payable 44,022 (113,715)
-------- --------
Net cash provided by operating activities 1,427,529 923,243
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (75,968) (197,538)
Proceeds from the sale of equipment - 28,000
Purchase of marketable securities - net (518,028) (150,090)
Proceeds from sale of marketable securities 24,854 -
-------- --------
Net cash (used in) investing activities (569,142) (319,628)
-------- --------
Cash flows from financing activities:
Proceeds from installment note - 30,339
Principal payments on long-term debt (7,483) (1,640)
Proceeds from exercise of stock options 12,750 9,900
Dividends Paid (341,820) (292,610)
-------- --------
Net cash (used in) financing activities (336,553) (254,011)
-------- --------
Net increase in cash and cash
equivalents 521,834 349,604
Cash and cash equivalents at beginning
of period 1,320,610 822,596
--------- --------
Cash and cash equivalents at end of period $ 1,842,444 $ 1,172,200
========= ========
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 September 30,1999 and the results of operations for the three and nine
months ended September 30,1999 and 1998 and cash flows for the nine
months ended September 30, 1999 and 1998. The accounting policies
followed by the Company are set forth in the Company's financial
statements included in its December 31, 1998 Annual Report to
Shareholders.
2. The results of operations for the three and nine months ended
September 30,1999 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 $327 and $391 for the nine
months ended September 30,1999 and 1998 respectively.
Cash payments for taxes were $680,199 and $602,107 for the
nine months ended September 30, 1999 and 1998 respectively.
4. Comprehensive Income
The components of comprehensive income are as follows:
1999 1998
--------- -------
Net income $1,145,348 $ 852,719
--------- -------
Other Comprehensive Income
Unrealized loss on
marketable securities (6,431) -
------- -------
Net unrealized loss (6,431) -
------- -------
Income tax benefit on
comprehensive loss (2,400) -
------- -------
Other comprehensive loss (4,031) -
------- -------
Comprehensive income $1,141,317 $ 852,719
========= =======
The component of accumulated other comprehensive losses are
unrealized losses on marketable securities.
5. 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 policies 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 nine months ended September 30, 1999
and 1998. All balance sheet disclosures are as of September 30, 1999 and
December 31, 1998.
6
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDAIN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 5,704,723 $ 1,388,780 $ 7,093,503 $ 5,437,402 $ 1,168,472 $ 6,605,874
Depreciation and amortization 136,605 - 136,605 209,688 - 209,688
Segment earnings (loss before
income taxes) 1,808,389 89,336 1,897,725 1,499,168 (62,828) 1,436,340
Segment assets 2,336,162 594,017 2,930,179 2,709,715 577,165 3,286,880
Expenditures for segment assets 36,718 36,718 64,492 - 64,492
Reconciliation to Consolidated Amounts
Earnings before income taxes
- ----------------------------
Total earnings for reportable segments 1,897,725 1,436,340
Other earnings 61,912 64,029
Corporate headquarters expense (132,889) (125,150)
----------- -----------
Consolidated earnings before income
taxes 1,826,748 1,375,219
Assets
- ------
Total assets for reportable segments 2,930,179 3,286,880
Corporate headquarters 4,587,003 3,216,904
----------- -----------
Total consolidated assets $7,517,182 $ 6,503,784
=========== ===========
</TABLE>
7
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
<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 $ - $ 327 $ 327 $ - $ 391 $ 391
Expenditures for assets 36,718 39,250 75,968 64,492 133,046 197,538
Depreciation and amortization 136,605 105,218 241,823 209,688 99,100 308,788
</TABLE>
<TABLE>
<CAPTION>
Geographic Information
- ----------------------
1999 1998
--------------------------- ---------------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
United States $ 3,384,935 $ 1,557,513 $ 3,757,434 $ 1,955,665
France 831,507 807,243
Other countries 2,877,061 2,041,197
----------- ------------- ----------- -------------
$ 7,093,503 $ 1,557,513 $ 6,605,874 $ 1,955,665
=========== ============= =========== =============
Major Customers
- ---------------
Customer A (Guardian) $ 1,508,940 $ 1,347,409
Customer B (Guardian) 777,342 760,738
All other customers 4,807,221 4,497,727
----------- -----------
$ 7,093,503 $ 6,605,874
=========== ===========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Gross revenue from operations
-----------------------------
For the nine month period ended September 30, 1999 net sales
increased $487,629 (7.4%) versus the comparable period in 1998. The
Guardian Laboratories division ("Guardian") had a sales increase of
$267,321 (4.9%) while the Eastern Chemical subsidiary ("Eastern") had a
sales increase of $220,308 (18.9%). The Guardian increases were mainly
due to (a) an increase in the Company's sales into Asia; and (b) the
expansion of the Company's overall sales in both the United-States and
overseas markets through the efforts of its outside agents and
distributors. The Eastern sales increases were due to normal fluctuations
in the purchasing patterns of customers.
For the three month period ended September 30, 1999 revenue
increased $21,207 (1.0%) over the comparable period in 1998. Guardian
sales decreased $126,962 (7.4%), while Eastern sales increased $148,169
(38.6%). Both the sales decrease of Guardian and the sales increase of
Eastern were due to the timing of orders and the normal fluctuations in
purchasing patterns of customers.
Cost of sales
-------------
Cost of sales as a percentage of sales decreased to 53.4% for
the nine months ended September 30, 1999 from 58.3% for the comparable
period ended September 30, 1998. For the three month period ended
September 30,1999 compared to the three month period September 30,1998
the cost of sales as a percentage of sales decreased to 54.9% from 58.1%.
The decreases were mainly due to a $100,000 charge for a write-down in
value of the Eastern inventory in the first quarter of 1998, lower cost
for one of the Company's largest volume raw materials throughout 1999 as
compared to 1998, and the absorption of plant fixed costs by higher
revenue in the second quarter in 1999.
Operating expenses increased $95,263 (6.6%) in the nine months
ended September 30,1999 compared to the comparable period in 1998. For
the three months ended September 30,1999 operating expenses increased
$21,960 (4.6%) over the comparable period in 1998. The increase for the
nine month period was primarily due to the payment in the second quarter
of 1999 of employee bonuses in accordance with a new company-wide
employee bonus program that was implemented in the second quarter of
1999. The program calls for the payment once a year of a bonus to all
qualifying employees when the Compensation Committee of the Board of
Directors determines that operating results are sufficient to do so. The
increase for the three month period was primarily due to fees under a new
consulting agreement for product development and marketing.
9
<PAGE>
Gain on Sale of Assets
----------------------
There were no gains realized on the sale of assets during the
nine and three month periods ended September 30, 1999. During the nine
month period ended September 30, 1998 the Company realized gains on the
sale of assets of $28,000.
Investment income
---------------
Investment Income increased $25,876 (71.0%) for the nine months
ended September 30, 1999 when compared to the comparable period in 1998,
and $10,767 (116.0%) for the three months ended September 30, 1999 when
compared to the comparable period in 1998. These increases are primarily
due to an increase in short term invested balances.
Provision for income taxes
--------------------------
The provision for income taxes increased $158,900 (30.4%) for
the nine months ended September 30,1999 when compared to the comparable
period in 1998, and $21,500 (13.5%) for the three months ended September
30,1999 when compared to the comparable period in 1998. These increases
are due to increased earnings before taxes of $451,529 (32.8) for the
nine months ended September 30,1999 and $66,147 (15.8%)for the three
months ended September 30,1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $3,926,228 at December 31, 1998
to $5,239,256 at September 30, 1999. The current ratio increased from 5.9
to 1 at December 31, 1998 to 15.1 to 1 at September 30, 1999. The Company
has no commitments for any further significant capital expenditures
during the remainder of 1999, and believes that its working capital is
and will continue to be sufficient to support its operating requirements.
Cash flows from operating activities increased $504,286 (54.6%)
for the nine months ended September 30, 1999 when compared the comparable
period in 1998. This increase relates to the increase in earnings and
additional provision for accrued taxes and expenses in 1999.
10
<PAGE>
Cash flows from investing activities decreased $249,514 (78.1%)
in the nine months ended September 30,1999 when compared to the
comparable period in 1998. This decrease is mainly due to additional
investments in marketable securities.
Cash flows from financing activities decreased $82,542 (32.5%)
in the nine months ended September 30,1999 when compared to the
comparable period in 1998. This decrease is mainly due to the increase in
cash dividends paid in 1999 when compared to 1998.
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. 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. To date the Registrant has received responses from all of its
major customers and suppliers, as well as most of the other less
significant customers and suppliers it contacted, and all have indicated
that they either are already Y2K compliant, or will be by the end of the
year. The Registrant is also involved in a contiuing effort secure 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 adversely
affected by the failure of one or more of its current raw material
suppliers to become Y2K compliant.
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 companies that handle
Registrant's payroll, security system, and telephone system; and the
Registrant's registrar and stock transfer agent.
11
<PAGE>
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.
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: November 10, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000101295
<NAME> UNITED-GUARDIAN, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,842,444
<SECURITIES> 1,088,173
<RECEIVABLES> 1,197,301
<ALLOWANCES> 52,434
<INVENTORY> 1,169,110
<CURRENT-ASSETS> 5,610,507
<PP&E> 4,650,346
<DEPRECIATION> 3,244,633
<TOTAL-ASSETS> 7,517,182
<CURRENT-LIABILITIES> 371,251
<BONDS> 0
0
0
<COMMON> 488,914
<OTHER-SE> 6,638,415
<TOTAL-LIABILITY-AND-EQUITY> 7,517,182
<SALES> 7,093,503
<TOTAL-REVENUES> 7,093,503
<CGS> 3,786,891
<TOTAL-COSTS> 3,786,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> 1,826,748
<INCOME-TAX> 681,400
<INCOME-CONTINUING> 1,145,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145,348
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
