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 June 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 June 30, 1999
-------------------
4,883,139
- -------------------------------------------------------------------------
<PAGE>
UNITED-GUARDIAN, INC.
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Statements of Earnings -
Three and Six Months Ended
June 30, 1999 and 1998 2
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3-4
Consolidated Statements of Cash Flows -
Six Months Ended
June 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)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
Net sales $ 4,966,017 $ 4,499,595 $ 2,552,042 $ 2,110,696
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 2,618,772 2,623,760 1,306,007 1,190,605
Operating expenses 1,047,141 973,838 564,012 480,439
--------- --------- --------- ---------
3,665,913 3,597,598 1,870,019 1,671,044
--------- --------- --------- ---------
Earnings from
operations 1,300,104 901,997 682,023 439,652
Other income (expense):
Interest expense (73) (296) - -
Investment Income 42,261 27,152 23,288 12,143
Gain on sale of assets - 28,000 - 20,000
Other (72) (15) (27) (15)
--------- --------- --------- --------
Earnings before
income taxes 1,342,220 956,838 705,284 471,780
Provision for
income taxes 500,600 363,200 263,800 182,300
--------- --------- --------- ---------
Net earnings $ 841,620 $ 593,638 $ 441,484 $ 289,480
========= ========= ========= =========
Earnings per common
share - Basic and
Diluted $ 0.17 $ 0.12 $ 0.09 $ 0.06
========= ========= ========= =========
Basic weighted average
shares 4,883,139 4,878,929 4,883,139 4,880,243
========= ========= ========= =========
Diluted weighted
average shares 4,900,646 4,906,147 4,900,835 4,908,874
========= ========= ========= =========
See notes to financial statements.
2
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30 DECEMBER 31
1999 1998
------------ -------------
ASSETS (UNAUDITED) (DERIVED FROM AUDITED
FINANCIAL STATEMENTS)
Current assets:
Cash and cash equivalents $ 1,444,448 $ 1,320,610
Investments - marketable securities 1,102,955 604,314
Accounts receivable
(less allowance for doubtful
accounts of $52,434 at
June 30, 1999 and $52,894
December 31, 1998) 1,484,341 1,300,118
Inventories 1,024,236 1,150,132
Prepaid expenses and other
current assets 180,807 169,786
Deferred income taxes 176,318 176,318
----------- -----------
Total current assets 5,413,105 4,721,278
----------- -----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 2,414,120 2,407,200
Building and improvements 1,972,577 1,964,646
Waste disposal plant 133,532 133,532
----------- -----------
4,589,229 4,574,378
Less: Accumulated depreciation 3,167,619 3,041,694
----------- -----------
1,421,610 1,532,684
----------- -----------
Other assets:
Processes and patents, net 164,763 190,685
Split dollar life insurance 348,161 348,161
Other 2,025 1,525
----------- -----------
514,949 540,371
----------- -----------
$ 7,349,664 $ 6,794,333
=========== ===========
See notes to financial statements.
3
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
--------------- ------------
LIABILITIES AND (UNAUDITED) (DERIVED FROM AUDITED
STOCKHOLDERS' EQUITY FINANCIAL STATEMENTS)
Current liabilities:
Accounts payable $ 191,646 $ 317,973
Dividends payable --- 341,820
Accrued expense and other 211,338 119,733
Taxes payable 97,002 5,524
Current portion of long-term
debt 10,048 10,000
--------- ---------
Total current liabilities 510,034 795,050
--------- ---------
Long-term debt, net of current
portion 11,048 16,229
--------- ---------
Deferred income taxes 10,000 10,000
--------- ---------
Stockholders' equity:
Common stock $.10 par value,
authorized 10,000,000 shares,
issued and outstanding
4,883,139 488,314 488,314
Capital in excess of par value 3,330,874 3,330,874
Accumulated other comprehensive
income(loss) 3,700 (208)
Retained earnings 2,995,694 2,154,074
--------- ---------
Total stockholders' equity 6,818,582 5,973,054
--------- ---------
$ 7,349,664 $ 6,794,333
========= =========
See notes to financial statements.
4
<PAGE>
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------
1999 1998
------- -------
Cash flows provided by operating activities:
Net earnings $ 841,620 $ 593,638
Adjustments to reconcile net earnings
to net cash flows from operations:
Depreciation and amortization 151,847 204,189
Gain on sale of equipment - (28,000)
Provision for doubtful accounts (460) -
(Increase) decrease in assets:
Accounts receivable (183,763) (158,121)
Inventories 125,896 126,174
Prepaid expense and other assets (11,521) (80,809)
Increase (decrease) in liabilities:
Accounts payable (126,327) (103,955)
Accrued expenses and other,
and taxes payable 180,788 (108,792)
-------- --------
Net cash provided by operating activities 978,080 444,324
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (14,851) (91,081)
Proceeds from the sale of equipment - 28,000
Purchase of marketable securities - net (517,292) (155,371)
Proceeds from sale of marketable securities 24,854 -
-------- --------
Net cash (used in) investing activities (507,289) (218,452)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (5,133) -
Proceeds from exercise of stock options - 9,075
Dividends Paid (341,820) (292,610)
-------- --------
Net cash (used in) financing activities (346,953) (283,535)
-------- --------
Net increase in cash and cash
equivalents 123,838 (57,663)
Cash and cash equivalents at beginning
of period 1,320,610 822,596
--------- --------
Cash and cash equivalents at end of period $ 1,444,448 $ 724,933
========= ========
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 June 30, 1998 and the results of operations for the three and six
months ended June 30, 1999 and 1998 and cash flows for the six months
ended June 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 six months ended
June 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 $73 and $296 for the six
months ended June 30, 1999 and 1998 respectively.
Cash payments for taxes were $883,368 and $431,642 for the
six months ended June 30, 1999 and 1998 respectively.
4. Comprehensive Income
The components of comprehensive income are as follows:
1999 1998
------- -------
Net income $ 841,620 $ 593,638
------- -------
Other Comprehensive Income
Unrealized gain on
marketable securities 5,873 -
------- -------
Net unrealized gains 5,873 -
------- -------
Income tax expense on
comprehensive income 2,173 -
------- -------
Other comprehensive income 3,700 -
------- -------
Comprehensive income $ 845,320 $ 593,638
======= =======
The component of accumulated other comprehensive gains are
unrealized gains 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 six months ended June 30, 1999 and
1998. All balance sheet disclosures are as of June 30, 1999 and June 30,
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>
Earnings from external customers $ 4,109,308 $ 856,709 $ 4,966,017 $ 3,715,025 $ 784,570 $ 4,499,595
Depreciation and amortization 83,180 - 83,180 69,144 - 69,144
Segment earnings (loss before
income taxes) 1,366,608 20,272 1,386,880 1,135,972 (81,508) 1,054,464
Segment assets 2,291,795 515,283 3,207,078 2,814,382 600,435 3,414,817
Expenditures for segment assets 1,816 - 1,816 39,430 - 39,430
Reconciliation to Consolidated Amounts
Earnings before income taxes
- ----------------------------
Total earnings for reportable segments 1,386,880 1,054,464
Other earnings 42,116 54,841
Corporate headquarters expense (86,776) (152,467)
----------- -----------
Consolidated earnings before income
taxes 1,342,220 956,838
Assets
- ------
Total assets for reportable segments 3,207,078 3,414,817
Corporate headquarters 4,142,586 2,808,385
----------- -----------
Total consolidated assets $ 7,349,664 $ 6,223,202
=========== ===========
</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 $ - $ 73 $ 73 $ - $ 296 $ 296
Expenditures for assets 1,816 13,035 14,851 39,430 51,651 91,081
Depreciation and amortization 83,180 68,667 151,847 69,144 135,045 204,189
</TABLE>
<TABLE>
<CAPTION>
Geographic Information
- ----------------------
1999 1998
--------------------------- ---------------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
United States $ 2,951,333 $ 1,586,373 $ 2,538,577 $ 1,953,805
France 658,023 583,020
Other countries 1,356,661 1,377,998
----------- ------------- ----------- -------------
$ 4,966,017 $ 1,586,373 $ 4,499,595 $ 1,953,805
=========== ============= =========== =============
Major Customers
- ---------------
Customer A (Guardian) $ 1,070,451 $ 832,799
Customer B (Guardian) 612,594 550,946
All other customers 3,282,972 3,115,850
----------- ------------
$ 4,966,017 $ 4,499,595
=========== ============
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Gross revenue from operations
-----------------------------
Net sales increased $466,422 (10.4%) for the six months ended
June 30, 1999 compared to the comparable period in 1998. The Guardian
Laboratories division ("Guardian") had a sales increase of $394,283
(10.6%) while the Eastern Chemical subsidiary ("Eastern") had a sales
increase of $72,139 (9.2%).
For the three month period ended June 30, 1999, revenue
increased $441,346 (20.9%) over the comparable period in 1998. Guardian
sales increased $413,817 (24.1%), while Eastern sales increased $27,529
(6.9%).
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 purchasing patterns of customers.
Cost of sales
-------------
Cost of sales as a percentage of sales decreased to 52.7% for
the six months ended June 30, 1999 from 58.3% for the comparable period
ended June 30, 1998. For the three month period ended June 30, 1999
compared to the three month period June 30, 1998 the cost of sales as a
percentage of sales decreased to 51.2% from 56.4%. 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 of 1999.
Operating expenses increased $73,303 (7.5%) in the six months
ended June 30, 1999 compared to the comparable period in 1998. For the
three months ended June 30, 1999 operating expenses increased $83,573
(17.4%) over the comparable period in 1998. These increases were
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.
9
<PAGE>
Gain on Sale of Assets
----------------------
There were no gains realized on the sale of assets during the
six and three month periods ended June 30, 1999. During the six and three
month periods ended June 30, 1998 the Company realized gains on the sale
of assets of $28,000 and $20,000 respectively
Investment income
---------------
Investment Income increased $15,109 (55.6%) for the six months
ended June 30, 1999 when compared to the comparable period in 1998, and
$11,145 (91.8%) for the three months ended June 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 $137,400 (37.8%) for
the six months ended June 30, 1999 when compared to the comparable period
in 1998, and $81,500 (44.7%) for the three months ended June 30, 1999
when compared to the comparable period in 1998. These increases are due
to increased earnings before taxes of $385,382 for the six months ended
June 30, 1999 and $233,504 for the three months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $3,926,228 at December 31,
1998 to $4,903,071 at June 30, 1999. The current ratio increased from 5.9
to 1 at December 31, 1998 to 10.6 to 1 at June 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 $533,756 (120.1%)
for the six months ended June 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 $288,837 (132.2%)
in the six months ended June 30, 1999 when compared to the comparable
period in 1998. This decrease is mainly due additional investments in
marketable securities.
Cash flows from financing activities decreased $63,418 (22.4%)
in the six months ended June 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: August 12, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000101295
<NAME> UNITED-GUARDIAN, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,444,448
<SECURITIES> 1,102,955
<RECEIVABLES> 1,536,775
<ALLOWANCES> 52,434
<INVENTORY> 1,024,236
<CURRENT-ASSETS> 5,413,105
<PP&E> 4,589,229
<DEPRECIATION> 3,167,619
<TOTAL-ASSETS> 7,349,664
<CURRENT-LIABILITIES> 510,034
<BONDS> 0
0
0
<COMMON> 488,314
<OTHER-SE> 6,330,268
<TOTAL-LIABILITY-AND-EQUITY> 7,349,664
<SALES> 4,966,017
<TOTAL-REVENUES> 4,966,017
<CGS> 2,618,772
<TOTAL-COSTS> 2,618,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 1,342,220
<INCOME-TAX> 500,600
<INCOME-CONTINUING> 841,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 841,620
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
