U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 1O-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999.
OR
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 0-7855
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UNITED-GUARDIAN, INC.
---------------------
(Name of small business issuer in its charter)
Delaware 11-1719724
- ------------------------------------ -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
230 Marcus Blvd., Hauppauge, NY 11788
- --------------------------------- -----------
(Address or principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (631) 273-0900
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Securities registered pursuant to Section l2(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- ---------------------------- ------------------------------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section l2(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or l5(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 |_|
Cover Page 1 of 2 Pages
<PAGE>
Indicate by check mark if there is no disclosure herein of
delinquent filers pursuant to Item 405 of Regulation S-B, and if, to the
best of registrant's knowledge, no disclosure will be contained in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. | |
The Registrant's revenues for the fiscal year ended December 31,
1999 were $9,136,733.
On March 9, 2000 the aggregate market value of the Registrant's
Common Stock (based upon the closing sales price of such shares on the
American Stock Exchange as reported in The Wall Street Journal) held by
non-affiliates of the Registrant was approximately $15,454,206.
(Aggregate market value has been estimated solely for the purposes of
this report. For the purpose of this report it has been assumed that all
officers and directors of the Registrant are affiliates of the Registrant
and no person, other than Alfred R. Globus, is an affiliate by virtue of
his stockholdings. The statements made herein shall not be construed as
an admission for determining the affiliate status of any person.)
On March 9, 2000 the Registrant had issued and outstanding
4,889,939 shares of Common Stock, $.10 par value per share ("Common
Stock").
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information required by Part III (portions of Item 9, as
well as Items 10 and 11) is incorporated by reference to the Registrant's
definitive proxy statement (the "2000 Proxy Statement") in connection
with its 2000 annual meeting of stockholders, which is to be filed no
later than April 21, 2000 with the Securities and Exchange Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
Cover Page 2 of 2 Pages
<PAGE>
This annual report on Form 10-KSB contains both historical and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which provides a safe harbor for
forward-looking statements by the Registrant about its expectations or
beliefs concerning future events, such as financial performance, business
prospects, and similar matters. The Registrant desires to take advantage
of such "safe harbor" provisions and is including this statement for that
express purpose. Words such as "anticipates", "believes", "expects",
"intends", "future", and similar expressions identify forward-looking
statements. Any such "forward-looking" statements in this report reflect
the Registrant's current views with respect to future events and
financial performance, and are subject to a variety of factors that could
cause Registrant's actual results or performance to differ materially
from historical results or from the anticipated results or performance
expressed or implied by such forward-looking statements. Because of such
factors, there can be no assurance that the actual results or
developments anticipated by the Registrant will be realized or, even if
substantially realized, that they will have the anticipated results. The
risks and uncertainties that may affect Registrant's business include,
but are not limited to: economic conditions, governmental regulations,
technological advances, pricing and competition, acceptance by the
marketplace of new products, retention of key personnel, the sufficiency
of financial resources to sustain and expand Registrant's operations, and
other factors described in this report and in prior filings with the
Securities and Exchange Commission. Readers should not place undue
reliance on such forward-looking statements, which speak only as of the
date hereof, and should be aware that except as may be otherwise legally
required of Registrant, Registrant undertakes no obligation to publicly
revise any such forward-looking statements to reflect events or
circumstances that may arise after the date hereof.
PART I
Item 1. Description of Business.
-----------------------
(a) General Development of Business
The Registrant is a Delaware corporation that conducts research,
product development, manufacturing and marketing of pharmaceuticals,
cosmetics, health care products, medical devices, and proprietary
industrial products. The Registrant also distributes a line of over 3,000
fine organic chemicals, research chemicals, test solutions, indicators,
dyes and reagents.
The Registrant operates in two business segments:
(1) The Guardian Laboratories Division ("Guardian") conducts
research, development, manufacturing, and marketing of a variety of
pharmaceuticals, medical devices, health care and cosmetic products, and
proprietary specialty chemical products. The Research and Development
Department of Guardian engages in research and development in the fields
of cosmetics, health care products, and specialty industrial chemical
products, for the purpose of developing new products, and refining
existing products that will be marketed or licensed by Guardian. Many of
the products manufactured by Guardian, particularly its LUBRAJEL(R) line
of products, are marketed worldwide through a network of distributors,
and are currently used by many of the major multinational cosmetic
companies.
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The Registrant presently has a broad range of products, some of
which are currently marketed, some of which are marketable but are not
currently marketed by the Registrant, and some of which are still in the
developmental stage. Of the products being actively marketed, the two
largest product lines are Registrant's LUBRAJEL(R) line of cosmetic
ingredients, which accounted for approximately 50% of the Registrant's
sales in 1999, and its RENACIDIN(R) IRRIGATION, a pharmaceutical product
that accounted for approximately 17% of the Registrant's sales in 1999.
The Registrant actively seeks other companies as potential marketers for
its products, particularly for those products that are not yet being
actively marketed by the Registrant.
(2) Eastern Chemical Corporation ("Eastern"), a wholly-owned
subsidiary of the Registrant, distributes an extensive line of fine
organic chemicals, research chemicals, test solutions, indicators, dyes,
stains, and reagents. Since the Registrant's business activities and
marketing efforts over the past several years have focused increasingly
on the Guardian division, which the Registrant believes has greater
growth potential, the Registrant is exploring the possibility of selling
Eastern. Registrant believes that if Eastern is sold, the loss of revenue
from that subsidiary will be more than made up for by increased revenue
from the Guardian division over the next few years.
(b) Narrative Description of Business
Guardian Laboratories Division
Guardian conducts research, product development, manufacturing
and marketing of many different personal care products, pharmaceuticals,
medical devices, health care products, cosmetic bases, and proprietary
specialty chemical products, all of which are developed by the
Registrant, and many of which have unique properties. The products
manufactured by Guardian are marketed through marketing partners,
distributors, direct advertising, mailings, and trade exhibitions.
Guardian's proprietary cosmetic and specialty chemical products are sold
through marketing partners and distributors and are incorporated into
products marketed by many of the major international cosmetic companies.
Many of Guardian's products are marketed through collaborative agreements
with larger companies. The pharmaceutical products are sold to end users
primarily through drug wholesalers and surgical supply houses. There are
also direct sales to the Veteran's Administration and other government
agencies, and to some hospitals and physicians.
During 1999, Guardian's sales accounted for approximately 80% of
Registrant's total product sales.
Guardian's products are sold under trademarks or trade names
owned by the Registrant. The marks for the most important products,
LUBRAJEL and RENACIDIN, are registered as trademarks in the United States
Patent and Trademark Office ("Patent Office"). In 1999 sales from these
two product lines accounted for approximately 83% of Guardian's sales,
and 67% of the sales of the Registrant as a whole.
LUBRAJEL
LUBRAJEL is a line of nondrying water-based moisturizing and
lubricating gels that have applications in the cosmetic industry
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primarily as a moisturizer and as a base for other cosmetic products, and
in the medical field primarily as a lubricant. In the cosmetic industry
it is used primarily as a stable gel for application around the eyes and
on the face and as an ingredient in skin creams and moisturizers, makeup,
body lotions, hair preparations, salves, and ointments. As a medical
lubricant it has been used on prelubricated enema tips and thermometers,
and as a lubricant for catheters. During 1999, sales of LUBRAJEL products
increased by 3% compared with 1998. During 1999, sales of LUBRAJEL
products represented 62% of Guardian's sales and 50% of the sales of the
Registrant as a whole.
Revenue from the sale of the Registrant's LUBRAJEL products
increased compared with the previous year as a result of greater
marketing success on the part of Registrant's marketing partners. The
most important product in the LUBRAJEL line in 1999 was LUBRAJEL CG (the
original form of LUBRAJEL), which increased in sales from $1,246,522 in
1998 to $1,623,778 in 1999, an increase of 30%. This increase was
attributable to increases in volume and not a result of price increases.
As a result of the continuing efforts of its marketing partners
and distributors Registrant believes that LUBRAJEL sales will continue to
increase in 2000 in the United States, Asia, and Europe. These sales
increases may be offset somewhat by continuing competition from products
introduced by Registrant's competitors. Despite this competition
Registrant still believes that there will be an overall increase in
sales, but that extent of the increase will be dependent on the ability
of Registrant's marketing partners to continue to bring in new customers.
Registrant believes that LUBRAJEL'S reputation for quality and customer
service will enable it to continue to compete effectively in the
marketplace.
RENACIDIN
RENACIDIN is a urological prescription drug used to prevent the
formation of and to dissolve calcifications in catheters implanted in the
urinary bladder. It is marketed as a ready to use 10% sterile solution
under the name "RENACIDIN IRRIGATION". RENACIDIN IRRIGATION is also
approved for use in dissolving certain types of kidney stones. Sales of
RENACIDIN IRRIGATION in 1999 accounted for 21% of Guardian's sales and
17% of the sales of the Registrant as a whole. Sales of RENACIDIN
IRRIGATION decreased 11% from $1,728,279 in 1998 to $1,540,216 in 1999.
Registrant believes that this decrease was the result of normal
fluctuations in buying patterns of customers, and that it is too soon to
determine whether this indicates a real decline in the use of the product
by end users. On October 9, 1990, the Patent Office issued to the
Registrant a patent covering the method of manufacturing RENACIDIN
IRRIGATION.
Other Products
Other significant products that are manufactured and sold by
Guardian but which did not individually comprise more than 5% of the
Registrant's sales in 1999 are as follows:
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CLORPACTIN(R) WCS-90 is a microbicidal product used primarily in
urology and surgery as an antiseptic for treating a wide range of
localized infections in the urinary bladder, the peritoneum, the
abdominal cavity, the eye, ear, nose and throat, and sinuses. The product
is a white powder that is made into a liquid prior to use. It is a
powerful disinfectant, fungicide, deodorizer, bleach, and detergent. In
late 1998 the Registrant entered into a marketing agreement with VascA,
Inc. for sale of the product as an adjunct to VascA's subcutaneous kidney
dialysis access port. As a result of regulatory issues that could not be
resolved in time for VascA's marketing plans, VascA decided not to pursue
this project. Sales of CLORPACTIN amounted to $276,596 in 1999 compared
to $269,247 in 1998, an increase of 3%.
KLENSOFT is a surfactant that can be used in shampoos, body
washes, makeup removers, and other cosmetic formulations. The primary
customer for Klensoft over the past few years was in Taiwan. As a result
of the problems in the Asian economies, sales of Klensoft declined
significantly from 1997 to 1998 (from $253,836 in 1997 to $41,712 in
1998), but in 1999 sales started to resume again and increased to
$164,289 in 1999, an increase of 294% over 1998. The Registrant believes
that sales will continue to increase as the economy in Taiwan continues
its recovery. In 1999 sales of Klensoft increased substantially in the
United Kingdom, Korea, and France. Based on current projections, sales in
2000 may exceed 1999 but are not expected to reach the 1997 level.
PHOSPHOCHOLATE is a mouth moisturizer used primarily by cancer
patients. The product was developed for, and had been marketed
exclusively by, Sage Products, Inc., an Illinois health care company with
which the Registrant had been working since 1993. In August, 1999 Sage
decided to reformulate the product and consolidate manufacturing and
packaging in one company, which the Registrant could not do. As a result,
sales to Sage decreased from $239,474 in 1998 to $227,657 in 1999, and
have been discontinued as of August, 1999. Registrant is currently
looking for other customers for this product, and has already initiated
discussions with one potential customer. Until that happens Registrant
does not expect any sales of this product.
LUBRAJEL PF is a preservative-free version of LUBRAJEL currently
being marketed primarily by Societe D'Etudes Dermatologiques ("Sederma")
under the tradename "Norgel". Sederma is the Registrant's distributor of
LUBRAJEL in France and a major European cosmetic supplier. Tests
conducted by Sederma indicated that the product self-preserved, and aided
in the preservation of other cosmetic ingredients with which it was
formulated. Sales of Lubrajel PF amounted to $97,720 in 1999 compared to
$236,600 in 1998, a decrease of 59%. Registrant believes that some of
this decrease may be attributable to (a) customers of LUBRAJEL PF
switching to other forms of LUBRAJEL; (b) the timing of orders; and (c)
the introduction of a product by Sederma that self-preserves and may be a
partial replacement for Norgel.
CONFETTI DERMAL ESSENTIALS is a product line introduced in 1996
that incorporates various functional oil-soluble ingredients into
colorful flakes that can be added to and suspended in various water-based
products. The product color and ingredients can be customized to the
needs of individual customers. Registrant believes that its product is
unique and that it has excellent market potential based on sales
increases experienced in 1999. The first commercial products using
Confetti appeared in 1997. Sales in 1999 amounted to $170,381 compared to
$152,294 in 1998, an increase of 12%.
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LUBRAJEL RR and RC are special grades of LUBRAJEL that can
withstand sterilization by gamma radiation, which is the preferred method
of terminal sterilization of medical and hospital products. In September,
1994 the Registrant entered into a marketing agreement with Horizon
Medical, Inc., a California company engaged in the development and
manufacturing of products and services to the medical device and
pharmaceutical industries. Horizon has been actively marketing the
product since January, 1996. On April 11, 1995, the Registrant was
granted a U.S. patent for this unique form of LUBRAJEL. Sales of LUBRAJEL
RC to Horizon amounted to $276,419 in 1999 compared to $208,693 in 1998,
an increase of 32%.
Other products that do not have significant sales at the present
time but have the potential for increased sales in the future, and which
as a group constituted approximately 3% of Registrant's sales in 1999,
are as follows:
OIL OF ORCHIDS(TM) is a base for skin creams, lotions,
cleansers, and other cosmetics. This product is an extract of fresh
orchids, modified by extractants, stabilizers, and preservatives. It is
soluble in water and alcohol and acts as a supplementary moisturizer. It
is also an enhancer for fragrances in perfumes and toiletries. It is sold
in two forms, water-soluble and oil soluble.
LUBRASIL and LUBRASIL DS are special types of LUBRAJEL in which
silicone oil is incorporated into a LUBRAJEL base by microemulsification,
while maintaining much of the clarity of regular LUBRAJEL. The products
have a silky feel, and are water resistant while moisturizing the skin.
DERMA-SURE PROTECTIVE LOTION is an alcohol-based product applied
to the skin which protects the skin against grease, oil, paint, stain,
and many other chemicals. The product can be both a consumer and
industrial product, and is currently produced in two formulations. The
Registrant is discussing the marketing of this product with two companies
at the present time, one looking at the possibility of selling it for
consumer use via one of the home shopping channels, and the other a major
producer of consumer and industrial products that is interested in
marketing the product for industrial use.
RAZORIDE is a clear, water-based, surfactant and soap-free
shaving product with excellent lubricity and moisturizing properties. The
Registrant is currently initiating an effort to market this product
itself via the Internet. It is also looking for other customers for the
product, and has one customer that has expressed a serious interest in
marketing the product for a use Registrant had not previously considered.
DESELEX(R) is a replacement for phosphates in detergents.
LUBRASLIDE(TM) and a related product, B-122(TM), are powders
used in the manufacture of cosmetics such as pressed powders, eye
shadows, and rouges.
FOAMBREAKER(TM) is a defoamer for cleansing solutions in the
electroplating, painting, and electronics industries. The product does
not leave the typical "fish-eye" residues associated with silicone
defoamers. It is an industrial product that does not require governmental
registrations or approvals. It is an unpatented, proprietary product.
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UNITWIX(TM) is a cosmetic additive used as a thickener for oils
and oil-based liquids. It is a proprietary, unpatented product that does
not require government approval to market.
Development Activities
Guardian's Research and Development Department has developed a
large number of products that can be used in many different industries,
including the pharmaceutical, medical, cosmetic, health care, and
specialty chemical industries. These products are in various stages of
development, some being currently marketable and some being in the very
early stages of development requiring a substantial amount of development
work to bring them to market. New uses for currently marketed products
are also being developed. Once a product is created, the initial
development work on it may consist of one or more of the following: (a)
laboratory refinements and adjustments to suit the intended uses of the
product; (b) stability studies to determine the effective shelf-life of
the product and suitable storage and transportation conditions for the
product; and (c) laboratory efficacy tests to determine the effectiveness
of the product under different conditions.
After the Research and Development Department has completed its
initial work on a product and is satisfied with the results of that work,
further development work to bring the product to market will continue,
including some or all of the following: (a) animal and human clinical
studies needed to determine safety and effectiveness of drug or medical
device products, which would be needed for submissions to the appropriate
regulatory agencies, such as the United States Food and Drug
Administration ("FDA") or the United States Environmental Protection
Agency ("EPA"); (b) preparatory work for the filing of Investigational
New Drug Applications or New Drug Applications; (c) market research to
determine the marketability of the product, including the potential
market size and most effective method of marketing the product; (d)
scaling up from laboratory production batches to pilot batches, and then
to full scale production batches, including the determination of the type
of equipment necessary to produce the product; (e) upgrading or
purchasing new equipment to manufacture the products; and (f) the
negotiation of joint venture or distribution agreements to develop and/or
market the product. Some of the foregoing work may be done by outside
contractors.
While there can be no assurance that any particular project will
result in a new marketable product or a commercially successful product,
the Registrant believes that a number of its development projects,
including those discussed below, may have commercial potential.
LUBRAJEL
Preliminary studies indicated that LUBRAJEL may help to
accelerate the healing of wounds, such as leg ulcers, when applied daily
and used in conjunction with a Spandex or similar bandage. The Registrant
believes that an additional study done on a larger group of patients is
warranted. Horizon Medical, Inc. (see "LUBRAJEL RR" discussion above) had
done some work with the product for this use, and received authorization
from the FDA to market the product as an accessory to a medical device
for specific wound healing uses. Registrant is continuing to look for
other potential marketers for this product.
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The Registrant is also engaged in a major new project with a
company based in the United Kingdom for the use of a modified form of one
of its Lubrajels in a globally marketed consumer health product. The
exact nature of this project cannot yet be disclosed due to
confidentiality agreements between the Registrant and this U.K. company.
However, in January, 2000 the Registrant was notified by this company
that they have decided to proceed with the project, and have indicated
that they will be needing product beginning in the second quarter of
2000.
CLORONINE
Cloronine is a powerful disinfectant, germicide, and sanitizer
for disinfecting medical and surgical instruments and equipment
(particularly where autoclaves are not available), and for the
purification of water supplies. The product has been approved for certain
uses in France and Canada. Before this product can be marketed in the
United States for any purpose, additional tests will have to be done to
determine if the product can be registered with the EPA as a sterilant or
germicide. These tests would comprise laboratory microbiological studies,
compatibility studies, and specific studies on its intended uses. The
product will also have to be registered with the FDA as an accessory to a
medical device. Neither registration process has yet begun. Due to the
expense and time required, the Registrant hopes to work jointly with
other companies to obtain these registrations. The Registrant was granted
two patents for this product.
FELINE HEALTH PRODUCTS
In March, 1996 Registrant entered into a research & development
agreement with Feline Health Products ("FHP") to develop a new animal
health care product. The project had been delayed for various reasons and
was put on hold; however, in late 1999 the Registrant was contacted by
FHP and was told that the project may resume this year if FHP is able to
find a new marketing partner. It is too early to know whether this
project will go forward or whether it has the potential to generate
significant revenue for the Registrant.
LIDOCAINE GEL
Registrant has developed a new Lidocaine-based urological
anaesthetic gel. This product was originally developed for a company in
the United Kingdom, but has not yet been brought to market by them.
Registrant has not yet decided whether it will market this product itself
or look for other potential marketers for it.
SONARITE
Sonarite is a product developed by the Registrant to reduce the
severity of snoring. It is a soft tissue lubricant that reduces the
surface tension in obstructed airways and allows for increased air flow.
The product has been in development since 1997. The Registrant is
currently having a new formulation of the product tested for the
treatment of sleep apnea, a sleep disorder affecting millions of people.
Registrant hopes that if the preliminary clinical results on this new
formulation are satisfactory it will be able to interest another company
in entering into a joint venture with Registrant to complete the product
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development and perform the necessary clinical testing to secure
regulatory approval to market the product. Registrant believes that the
marketing of the product to reduce the severity of snoring would only
require the filing of a 510(k) pre-market notification to the FDA, but
that the marketing of the product for the treatment of sleep apnea would
require a New Drug Application.
Trademarks and Patents
The Registrant strongly believes in protecting its intellectual
property and intends whenever possible to make efforts to obtain patents
in connection with its product development program. The Registrant
currently owns many United States patents relating to its products. The
Registrant has patent applications pending with respect to a number of
its research and development products. Patents formerly held by the
Registrant on certain products have expired. There can be no assurance
that any patents held by the Registrant will be valid or otherwise of
value to the Registrant or that any patent applied for will be granted.
However, the Registrant believes that its proprietary manufacturing
techniques and procedures with respect to certain products offer it some
protection from duplication by competitors regardless of the patent
status of the products.
The various trademarks and trade names owned or used by the
Registrant in Guardian's business are of varying importance to the
Registrant. The most significant products for which the Registrant has a
registered trademark are LUBRAJEL, RENACIDIN, and CLORPACTIN.
Set forth below is a table listing certain information with
respect to all unexpired U.S. patents held by the Registrant:
<TABLE>
<CAPTION>
PATENT NAME PATENT # ISSUE DATE EXPIRATION
DATE
--------- ---------- ----------
<S> <C> <C> <C>
Treatment of Hazardous Waste 4,581,130 4/8/86 4/8/03
Treatment of Hazardous Materials; Dehalogenation 4,601,817 7/22/86 7/22/03
with sodium-copper-lead alloy
Treatment of Hazardous Waste - ternary alloy and oil 4,695,400 9/22/87 9/22/04
slurry thereof; sodium, copper, lead
Iodophor; Polyethylene Glycol Alkylaryl-sulfonate 4,873,354 10/10/89 10/10/06
Iodine complex
Thermal Resistant Microbial Agent ("Cloronine") 4,954,316 9/4/90 9/4/07
Method of Preparing Time-Stable Solutions of Non- 4,962,208 10/9/90 10/9/07
Pyrogenic Magnesium Gluconocitrate ("Renacidin
Irrigation")
Use of Clorpactin for the Treatment of Animal 4,983,634 1/8/91 1/8/08
Mastitis & the applicator used in that treatment
(owned jointly by the Registrant and Diversey Ltd.)
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Iodophor; biocide; reacting polyethylene glycol, 5,013,859 5/7/91 5/7/08
alkylarylsulfonate and Iodine water-propylene glycol
solvent refluxing
Stabilized Beta Carotene 5,023,355 6/11/91 6/11/08
Stable, Active Chlorine Containing Anti-microbial 5,128,342 7/7/92 7/7/09
Compositions ("Cloronine")
Gamma Radiation Resistant Lubricating Gel 5,405,622 4/11/95 4/11/12
</TABLE>
The Registrant requires all employees and consultants who may
receive proprietary information to agree in writing to keep such
proprietary information confidential.
Eastern Chemical Corporation
Eastern Chemical Corporation is a wholly owned subsidiary of the
Registrant. It distributes an extensive line of fine organic chemicals,
research chemicals, test solutions, indicators, dyes and stains, and
reagents. In 1999, Eastern's sales accounted for approximately 20% of the
total product sales of the Registrant versus 18% in 1998.
Marketing
Guardian markets its products through (a) distributors; (b)
advertising in medical and trade journals, by mailings to physicians and
to the trade; and (c) exhibitions at appropriate medical meetings. The
pharmaceutical products are generally sold in the United States to drug
wholesalers, surgical supply houses and drug stores for resale, and
directly to hospitals, physicians, the Veteran's Administration, and
other government agencies. The proprietary cosmetic and specialty
chemical products are sold to distributors for resale and directly to
manufacturers for use as ingredients or additives in the manufacture or
compounding of other cosmetic or chemical products.
Eastern's products are marketed through advertising in trade
publications and direct mailings. They are sold to distributors and
directly to users in a wide variety of applications. Eastern does not
sell any unique products and is not dependent on any single customer or
group of customers on a continuous basis.
Domestic Sales
In the United States Registrant's cosmetic products are marketed
exclusively by International Specialty Products ("ISP") in accordance
with two marketing agreements entered into in 1994 and 1996 (see
"Marketing Agreements" below). ISP also has the right to sell some of
Registrant's other industrial and medical products. In 1999 ISP's
purchases for distribution in the United States were estimated to be
approximately $1,078,000, and accounted for approximately 12% of the
Registrant's sales. Registrant's domestic sales of pharmaceutical
products are handled primarily through the major full-line drug
wholesalers and account for approximately 20% of Registrant's sales.
Registrant's other products, such as its industrial products, are sold
directly to end-users by the Registrant and account for less than 2% of
Registrant's sales. (*Note: this figure is an estimate based on sales
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information provided to Registrant by ISP. Registrant has no way of
independently determining which of ISP's purchases are intended for
domestic sale and which are intended for foreign sale.)
Foreign Sales
In 1999 the Registrant derived approximately 41% of its sales
from customers in foreign countries, primarily from sales of its cosmetic
products in Europe, compared to 44% in 1998. The Registrant currently has
8 distributors for its cosmetic products outside the United States: S.
Black (Import & Export) Ltd. in the United Kingdom ("S. Black"); Sederma
and Warwick France in France; S.A. de Especialidades Quimicas in Spain;
Luigi & Felice Castelli S.R.L. in Italy; S. Black Gmbh in Switzerland;
C&M International in Korea; and ISP in Germany, Eastern Europe, the
Benelux countries, Canada, Mexico, South & Central America, Asia (with
the exception of Korea), and most of the remaining foreign markets. The
percentage of Registrant's sales by its largest foreign distributors were
as follows: Sederma: 9%; ISP (for sales outside of the United States):
12% (an estimate based on sales figures provided to the Registrant by
ISP); S. Black: 8%; and C&M International: 4%.
Marketing Agreements
ISP
In 1994 Registrant entered into an agreement with ISP whereby
ISP would market certain of Registrant's products, primarily its cosmetic
products, in Europe, Asia, Australia, and Africa. That agreement
established an alliance with ISP that was intended to bring the
Registrant's products to many regions of the world where either they had
not been marketed before, or where previous marketing efforts had been
unsatisfactory. The major focus of that agreement was the Far East, but
also included Eastern Europe, Russia, and some countries in Western
Europe, most importantly Germany. The agreement provided for exclusivity
in those areas as long as minimum purchase requirements were met. ISP
manufactures and markets an extensive line of personal care,
pharmaceutical, and industrial products on a global basis.
In 1996 Registrant entered into an additional marketing
agreement with ISP whereby ISP became Registrant's exclusive distributor
of its cosmetic products in the United States, Canada, Mexico, and
Central and South America, thereby significantly expanding ISP's
territory. As with its earlier agreement, this agreement provided for
exclusivity as long as yearly minimum purchase levels are attained.
Accompanying this agreement was a modification to the 1994 agreement to
provide consistency between the two agreements.
Registrant is currently in the process of renegotiating its
marketing agreement with ISP. Registrant believes that it will be
successful in implementing a new marketing agreement with ISP that will
give the Registrant greater flexibility in appointing other marketing
partners in areas where ISP is not active or has not been successful.
Registrant believes that in the event ISP were to cease
marketing Registrant's products, that alternative arrangements could be
made to continue to supply product to the customers currently using
Registrant's products without any significant interruption of supply.
Page 10
<PAGE>
CREATIVE TECHNOLOGIES
In an effort to accelerate the marketing of some of Registrant's
other products, for the past few years Registrant has been working with
Creative Technologies, Inc. ("Creative"), a marketing consulting company.
Registrant is currently working with Creative on some specific projects
to assist Registrant in the marketing of some of Registrant's products
and assist Registrant with its overall marketing efforts.
VASCA, INC.
In December, 1998, Registrant entered into a marketing agreement
with VascA, Inc. whereby VascA was to promote the use of Registrant's
Clorpactin WCS-90 as a disinfecting agent for use with VascA's
subcutaneous kidney dialysis access port. Due to the uncertain regulatory
status of Clorpactin VascA decided not to continue with the Clorpactin as
part of its regulatory submission, and by mutual agreement both parties
terminated the marketing agreement. Registrant is now working towards
clarifying the regulatory status of Clorpactin which may enable VascA to
once again market Clorpactin as an adjunct to its access port.
The Registrant's other marketing arrangements can be terminated
at any time by either party.
Raw Materials
The principal raw materials used by the Registrant consist of
common industrial organic chemicals, laboratory reagents, and common
inorganic chemicals. Most of these materials are available in ample
supply from numerous sources. The Registrant's principal raw material
suppliers are Proctor and Gamble, Callahan Chemical Company, Van Waters &
Rogers, Inc., Protameen Chemicals Inc., Alzo, Inc., Vitusa Products,
Inc., Monson Chemical, Morton Thiokol, A. E. Staley Chemical, B.A.S.F.,
DSM Fine Chemicals Inc., Eastman Chemical, Clariant Corp., Ishihara
U.S.A., Nissei Trading Co., and Varessa, Ltd.
Inventories; Returns and Allowances
The Registrant's business requires that it maintain large
inventories of certain of its finished goods. Historically, returns and
allowances have not been a significant factor in the Registrant's
business.
Backlog
The Registrant currently does not have any significant backlog.
Competition
Guardian has many products or processes that are either unique
in their field or have some unique characteristics, and therefore are not
in direct competition with the products or processes of other
pharmaceutical, chemical, or health care companies. However, the
pharmaceutical, health care, and cosmetic industries are all highly
competitive, and the Registrant expects competition to intensify as
advances in the field are made and become widely known. There may be many
domestic and foreign companies that are engaged in the same or similar
areas of research as those in which the Registrant is engaged, many of
Page 11
<PAGE>
which have substantially greater financial, research, manpower, marketing
and distribution resources than the Registrant. In addition, there are
many large, integrated and established pharmaceutical, chemical and
cosmetic companies that have greater capacity than the Registrant to
develop and to commercialize types of products upon which the
Registrant's research and development programs are based. The Registrant
believes that manufacturing, regulatory, distribution and marketing
expertise will be increasingly important competitive factors. In this
regard, the Registrant believes that arrangements with major health care
and medical or hospital products suppliers will be important factors in
the commercialization of many of the products which it is currently
developing.
Eastern faces competition from many other chemical manufacturers
and distributors, many of which have much greater financial resources
than those of the Registrant. Eastern's competition is based primarily
upon price, service and quality. Eastern attempts to maintain its
competitive position in the industry through its ability to (i) locate
and make wholesale arrangements to purchase the chemicals with suppliers
located all over the world, (ii) maintain a sufficient inventory of each
of its items at all times, and (iii) customize each order as to quantity
of the item requested and to tailor the price of the order to such
quantity. Eastern's primary competitors are Fluka Chemicals, Sigma
Chemical Company, Aldrich Chemical Co., Inc., Acros Organics, Pfaltz &
Bauer, Inc., and Spectrum Chemical Mfg. Corp.
ISO-9000 REGISTRATION
On November 24, 1998 the Registrant earned ISO-9002 registration
from Underwriters Laboratories, Inc., indicating that the Registrant's
documented procedures and overall operations had attained the high level
of quality needed to receive ISO registration.
Government Regulation
Regulation by governmental authorities in the United States and
other countries is a significant factor in the manufacturing and
marketing of many of the Registrant's products. The Registrant and many
of Registrant's products are subject to certain government regulations.
Products that may be developed and sold by the Registrant in the United
States may require approval from federal regulatory agencies, such as the
FDA, as well as state regulatory agencies. Products that may be developed
and sold by the Registrant outside of the United States may require
approval from foreign regulatory agencies. Any medical device products
developed by the Registrant will be subject to regulation by the Center
for Devices and Radiological Health of the FDA, and will usually require
a 510(k) pre-market notification. Most pharmaceutical products will
require clinical evaluation under an Investigational New Drug ("IND")
application prior to submission of a New Drug Application ("NDA") for
approval of a new drug product.
A drug product normally must go through several phases in order
to obtain FDA approval. The research phase involves work up to and
including discovery, research, and initial production. Next is the
pre-clinical phase, which involves studies in animal models necessary to
support an IND application to the FDA and foreign health registration
authorities to commence clinical testing in humans. Clinical trials for
pharmaceutical products are conducted in three phases. In Phase I,
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<PAGE>
studies are conducted to determine safety and dosages. In Phase II,
studies are conducted to gain preliminary evidence as to the efficacy of
the product. In Phase III, studies are conducted to provide sufficient
data for the statistical proof of safety and efficacy, including dose
regimen. Phase III is the final stage of such clinical studies prior to
the submission of an application for approval of an NDA. The amount of
time necessary to complete any of these phases cannot be predicted with
any certainty.
In all cases, the Registrant is required to comply with all
pertinent Good Manufacturing Practices of the FDA for medical devices and
drugs. Accordingly, the regulations to which the Registrant and certain
of its products may be subject, and any changes with respect thereto, may
materially affect the Registrant's ability to produce and market new
products developed by the Registrant.
The Registrant's present and future activities are, and will
likely continue to be, subject to varying degrees of additional
regulation under the Occupational Safety and Health Act, Environmental
Protection Act, import, export and customs regulations, and other present
and possible future foreign, federal, state and local regulations.
Portions of the Registrant's operating expenses are directly
attributable to complying with federal, state, and local environmental
statutes and regulations. In 1999 and 1998 the Registrant incurred
approximately $39,000 and $46,000 respectively, in environmental
compliance costs.
Research and Development Expense
Portions of the Registrant's operating expenses are directly
attributable to research and development the Registrant performs. In 1999
and 1998, the Registrant incurred approximately $267,000 and $234,000,
respectively, in research and development expenses. The expenses consist
of direct costs as well as factory overhead. No portion of the research
and development expenses was directly paid by the Registrant's customers.
Revenue and Earnings
The tables below set forth, for the years indicated, the revenue
(including fees and retainers), and earnings from operations attributable
to the Registrant and to the Registrant's business segments:
Page 13
<PAGE>
YEAR ENDED YEAR ENDED
December 31, December 31,
1999 1998
---- ----
Revenue:
- -------
Guardian $7,321,871 $7,230,783
Eastern 1,814,862 1,538,955
--------- ---------
9,136,733 $8,769,738
========= =========
Earnings from Operations:
Guardian $2,269,346 $1,819,443
Eastern 31,371 (103,934)
Corporate (180,490) (166,238)
--------- ---------
$2,120,227 $1,549,271
========= =========
Identifiable Assets
The table below sets forth as of the dates indicated the
identifiable assets of the Registrant as a whole, as well as the
identifiable assets of the Registrant's business segments:
As of:
---------------------------------
December 31, December 31,
1999 1998
---------- ----------
Guardian $2,321,345 $2,659,964
Eastern 542,683 591,550
Corporate 5,030,896 3,542,819
--------- ---------
$7,894,924 $6,794,333
========= ==========
For certain additional financial information concerning the
Registrant's industry segments see Note I of Notes to Consolidated
Financial Statements of the Registrant contained in Item 7 herein.
Employees
The Registrant presently employs 44 people, 6 of whom serve in
an executive capacity, 21 in research, quality control and manufacturing,
5 in maintenance and construction and 12 in office and administrative
work. Of the total number of employees, 42 are full time employees. None
of the Registrant's employees are covered by a collective bargaining
agreement. The Registrant believes that its relations with its employees
are satisfactory.
Page 14
<PAGE>
Item 2. Description of Property.
-----------------------
The Registrant maintains its principal offices and conducts most
of its research at 230 Marcus Boulevard, Hauppauge, New York 11788. These
premises, which the Registrant owns, contain approximately 30,000 square
feet of manufacturing space, 15,000 square feet of warehouse space, and
5,000 square feet of office and laboratory space on approximately 2.7
acres of land. The Registrant has now fully developed the 2.7 acres, and
fully utilizes the buildings occupying the land. The Registrant believes
that the aforementioned property is adequate for its immediately
foreseeable needs. The property is presently unencumbered and is
adequately insured.
Item 3. Legal Proceedings.
-----------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
---------------------------------------------------------
Market Information
The Common Stock of the Registrant is traded on the American
Stock Exchange (the "AMEX") under the symbol "UG". The following table
sets forth for the periods indicated the high and low closing sale prices
of the shares of Common Stock, as reported by the AMEX Market Statistics
for the period January 1, 1998 to December 31, 1999. The quotations
represent prices between dealers and do not include retail markup,
markdown or commission:
Year Ended Year Ended
Quarters December 31, 1999 December 31, 1998
- -------- ----------------------------------------------------------------
High Low High Low
First (1/1 - 3/31) $ 4 9/16 $ 2 3/4 $ 5 15/16 $ 4 1/8
Second (4/1 - 6/30) 4 3/4 2 7/8 6 11/16 4 7/8
Third (7/1 - 9/30) 4 7/8 3 9/16 5 1/2 3 11/16
Fourth (10/1 - 12/31) 4 1/4 3 5 3/4 3 1/2
Holders of Record
As of March 9, 2000 there were 1,233 holders of record of Common
Stock.
Page 15
<PAGE>
Cash Dividends
On January 7, 2000 the Registrant paid an $.08 per share
dividend to all stockholders of record as of December 15, 1999. On
January 5, 1999 the Registrant paid a $.07 per share dividend to all
stockholders of record as of December 10, 1998.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results Of Operations:
Year Ended December 31,1999 Compared to
Year Ended December 31,1998
Revenue
Consolidated revenue in 1999 increased by $366,995 (4.2%)
compared to 1998 due to revenue increases in the Guardian Division of
$91,088 (1%) and an increase in the Eastern Division of $275,907 (18%).
The Guardian sales increase was due mainly to increases in sales of
Guardian's products into Asia through its distributor, ISP. The Eastern
increases were due to normal fluctuations in the purchasing patterns of
customers.
Costs and Expenses
Costs and expenses in 1999 decreased by $203,961 (3%) compared
to the prior year due to decreases in cost of sales of $56,256 (1%) and
decreases in operating expenses of $147,705 (7%). Costs of sales as a
percentage of sales decreased to 54% in 1999 as compared to 57% in 1998.
The 3% decrease in cost of sales as a percentage of sales was
attributable primarily to a decrease in the cost of one of the Company's
largest volume raw materials in 1999 compared to 1998.
The decrease in operating expenses in 1999 was primarily due to
a non-cash charge of approximately $204,000 relating to the unamortized
costs of the Registrant's Sonarite technology in 1998 which was partially
offset by the payment of employee bonuses in the second quarter of 1999.
In October, 1998 the Registrant determined that the then current
formulation of the Registrant's Sonarite technology required further
development and testing before the product could be marketed. The
employee bonuses is 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.
Other Income (Expense)
Interest expense increased from $523 in 1998 to $581 in 1999.
Investment and other income increased from $66,466 to $112,739
principally due to the investing of excess cash provided from operations.
The Registrant realized gains on sale of assets of $31,000 and $,4,796 in
1998 and 1999 respectively.
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<PAGE>
Provision for Income Taxes
The provision for income taxes increased from $632,677 in 1998
to $847,000 in 1999. This increase is primarily due to the increase in
earnings before income taxes of $590,967 (36%) between years. The
Registrant's effective rates remained consistent at approximately 38%.
Liquidity and Capital Resources
Working capital increased from $3,926,106 as of the end of 1998
to $5,163,798 as of the end of 1999, an increase of $1,237,692 (32%).
The current ratio increased from 5.9 to 1 at December 31, 1998
to 6.9 to 1 at December 31, 1999. The increase in working capital was due
primarily to increases in cash provided by operations.
The Registrant has a line of credit agreement with a bank for
borrowings of up to $700,000. As of December 31, 1999, there were no
outstanding borrowings on this line of credit.
The Registrant generated cash from operations of $1,831,260 in
1999 compared to $1,234,272 in 1998. The increase in 1999 was primarily
due to increased earnings. During the years 1999 and 1998 the Registrant
invested approximately $94,000 and $271,000, respectively, for plant and
equipment. Cash used in investing activities was $798,656 and $482,871 in
the years ended December 31, 1999 and 1998 respectively. The increase in
1999 was mainly due to an increase in the purchase of marketable
securities. Cash used in financing activities was $338,658 and $253,387
in the years ended December 31, 1999 and 1998 respectively. The increase
was primarily due to an increase in dividends paid in 1999.
While the Registrant believes that its working capital is
sufficient to support its operating requirements for the next fiscal
year, the Registrant's long-term liquidity position will be dependent
upon its ability to generate sufficient cash flow from operations. The
Registrant has no material commitments for future capital expenditures.
Impact of Inflation, Changing Prices, and Seasonality
While it is difficult to assess the impact of inflation on the
Registrant's operations, management believes that, because of the
proprietary nature of the majority of its product line, inflation has had
little impact on net sales. Sales have changed as a result of volume and
product mix. While inflation has had an impact on the cost of sales and
payroll, these increases have been recaptured by price increases to the
greatest extent possible. Registrant's products and sales are not
considered to be seasonal, and are generally distributed evenly
throughout the year.
Impact of the "Year 2000" Issue
At the end of 1999 the Registrant experienced no problems
related to the Year 2000 ("Y2K") issue, either internally or with any of
its customers or suppliers. In 1998 the Registrant purchased new computer
equipment to enable it to run a new Y2K compliant version of its
accounting software, and at the end 1999 and beginning of 2000 the
Page 17
<PAGE>
Registrant did not experience any Y2K problems with its accounting
software or any of its other computer programs. All of Registrant's costs
associated with bringing its systems into Y2K compliance were incurred in
1998, and no additional costs were incurred in 1999.
All of Registrant's key non-information technology systems were
determined to be Y2K compliant prior to the end of 1999, and none
experienced any problems at the end of 1999 and beginning of 2000.
Registrant believes that it has made all of the changes
necessary to avoid any future problems related to the Y2K issue, and does
not expect to incur any further expense in this area. increase was due
mainly to increases in sales of Guardian's products into Asia through its
distributor, ISP. The Eastern increases were due to normal fluctuations
in the purchasing patterns of Customers.
All of Registrant's key non-information technology systems were
determined to be Y2K compliant prior to the end of 1999, and none
experienced any problems at the end of 1999 and beginning of 2000.
Registrant believes that it has made all of the changes
necessary to avoid any future problems related to the Y2K issue, and does
not expect to incur any further expense in this area.
Item 7. Financial Statements.
Annexed hereto starting on page F-1
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not Required.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
--------------------------------------------------
Directors and Executive Officers
Set forth in the table below is certain information as of March
9, 2000 with respect to the executive officers and directors of the
Registrant:
Name Age Position(s) with the Registrant
-------- -- -------------------------------
Dr. Alfred R. Globus 79 Chairman of the Board, Chief Executive Officer
and Director
Kenneth H. Globus 48 President, Chief Financial Officer, General
Counsel and Director
Robert S. Rubinger 57 Executive Vice President, Secretary, Treasurer
and Director
Charles W. Castanza 67 Vice President and Director
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<PAGE>
Derek Hampson 60 Vice President
Joseph J. Vernice 41 Vice President
Lawrence Maietta 42 Director
Henry P. Globus 77 Director
Benjamin Wm. Mehlman 89 Director
Alan E. Katz 56 Director
Arthur Dresner 58 Director
Dr. Alfred Globus has been Chairman of the Board and Chief
Executive Officer of the Registrant since July, 1988. He served as
Chairman of the Board and President of the Registrant from the inception
of the Registrant in 1942 until July, 1988. He has been a director of the
Registrant since 1942.
Kenneth H. Globus has been President and General Counsel of the
Registrant since July, 1988. He served as Vice President and General
Counsel of the Registrant from July, 1983 until July, 1988. He has been a
director of the Registrant since 1984. He became the Chief Financial
Officer in November, 1997.
Robert S. Rubinger has been Executive Vice President and
Secretary of the Registrant since July, 1988, and Treasurer since May,
1994. He served as Vice President and Secretary of the Registrant from
February, 1982 until July, 1988. He has been a director of the Registrant
since 1982.
Charles W. Castanza has been a Vice President of the Registrant
since April, 1986. He served as Operations Manager of Chemicals and
Pharmaceuticals of the Registrant from February, 1982 until April, 1986.
He has been a director of the Registrant since 1982.
Derek Hampson has been a Vice President of the Registrant since
October, 1987. He has served as Manager of the Eastern Chemical Corp.
subsidiary since 1971.
Joseph J. Vernice has been a Vice President of the Registrant
since February, 1995. He served as Assistant Vice President of the
Registrant from November, 1991 until February, 1995.
Lawrence Maietta has been a partner in the public accounting
firm of Bonamassa & Maietta, C.P.A.s in Brooklyn, NY since October, 1991.
For more than five years prior to that he was a partner in the public
accounting firm of Wilfred, Wyler & Co. in New York, NY. He was
controller for the Registrant from October, 1991 until November, 1997,
and a director of the Registrant since February, 1994.
Henry P. Globus has been a consultant to the Registrant since
July, 1988. He served as Executive Vice President of the Registrant from
1982 until July, 1988. He has been a director of the Registrant since
1947.
Page 19
<PAGE>
Benjamin William Mehlman was formerly a judge and attorney in
private practice until he retired from the practice of law in February,
1999. From 1984 to 1998 he had been counsel to the law firm of William T.
Friedman and its predecessor, Friedman and Shaftan. He has been a
director of the Registrant since 1964.
Alan E. Katz has been a partner in the law firm of Greenfield
Stein & Senior, LLP, New York, NY since November, 1984. He has been a
director of the Registrant since February, 1994.
Arthur Dresner is an attorney in private practice and an
independent business consultant. From June 1998 to the present he has
been engaged as "Of Counsel" to the law firm of McAulay Nissen Goldberg
Kiel & Hand in New York City. From 1974 until 1997 he was employed as a
Vice President in the corporate development area and general management
of ISP. He has been a director of the Registrant since April, 1997.
Dr. Alfred R. Globus and Henry P. Globus are brothers. Kenneth
H. Globus is the son of Henry P. Globus and the nephew of Dr. Alfred R.
Globus. There are no other family relationships between any directors or
officers of the Registrant.
Compliance with Section 16(a) of the Exchange Act
The information required by this section is incorporated herein
by reference to the section entitled "Directors and Executive Officers -
Section 16(a) Beneficial Ownership Reporting Compliance" of the proxy
statement for the 2000 annual meeting of stockholders ("2000 Proxy
Statement").
Item 10. Executive Compensation.
----------------------
The information required by this Item is incorporated herein by
reference to the section entitled "Compensation of Directors and
Executive Officers - Summary Compensation Table" of the 2000 Proxy
Statement.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
---------------------------------------------------
The information required by this Item is incorporated herein by
reference to the section entitled "Voting Securities and Principal
Stockholders - Security Ownership of Management" of the 2000 Proxy
Statement.
Item 12. Certain Relationships and Related Transactions.
-----------------------------------------------
The Registrant has a split dollar life insurance arrangement
with Alfred R. Globus, its Chairman and Chief Executive Officer
("Insured"). For fiscal years 1995 through 1998 Registrant made
non-interest-bearing advances of approximately $87,000 per year
(approximately 87% of the annual cost of the $1,500,000 policy), on
behalf of a trust of which the Insured is the grantor and another
officer, Kenneth H. Globus is one of the beneficiaries. Under a
collateral assignment agreement the proceeds from the policy will first
Page 20
<PAGE>
be paid to the Registrant to repay all of the advances it made. In April,
1999 the face amount of the policy was reduced to $1,000,000. If the
policy is terminated prior to the death of the Insured, the Registrant
will be entitled to the cash surrender value of the policy at that time,
and any shortfall between that amount and the amount of the advances made
by the Registrant will be repaid to the Registrant by the Insured. As of
December 31, 1999 and 1998, cumulative advances of $348,161 are recorded
in the Consolidated Balance Sheets under "Other Assets".
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3(a) Certificate of Incorporation of the Registrant as filed
April 22, 1987. Incorporated by reference to Exhibit 4.1
to the Registrant's Current Report on Form 8-K, dated
September 21, 1987 (the "1987 8-K").
3(b) Certificate of Merger of United-Guardian, Inc. (New York)
with and into the Registrant as filed with the Secretary
of State of the State of Delaware on September 10, 1987.
Incorporated by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended February 29, 1988 (the "1988 10-K").
3(c) By-laws of the Registrant. Incorporated by reference to
Exhibit 4.2 to the 1987 8-K.
4(a) Specimen Certificate for shares of common stock of the
Registrant. Incorporated by reference to Exhibit 4(a) to
the 1988 10-K.
10(a) Qualified Retirement Income Plan for Employees of the
Registrant, as restated April 1, 1976. Incorporated by
reference to Exhibit 11(c) of the Registrant's
Registration Statement on Form S-1 (Registration No.
2-63114) declared effective February 9, 1979.
10(b) Employment Termination Agreement dated July 8, 1988
between the Registrant and Henry Globus. Incorporated by
reference to Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the 10-month transition period
from March 1, 1991 to December 31, 1991.
10(c) Distribution Agreement between the Registrant and Societe
D'Etudes Dermatologies, dated November 20, 1991.
Incorporated by reference to Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the 10-month
transition period from March 1, 1991 to December 31, 1991.
10(d) Exclusive Distributor Agreement between the Registrant and
ISP (Switzerland) A.G. dated December 9, 1994.
Incorporated by reference to Exhibit 10(m) of the 1994
10-KSB. The Registrant has been granted confidential
treatment of portions of some of the schedules to this
Agreement.
Page 21
<PAGE>
10(e) Exclusive Distributor Agreement between the Registrant and
ISP Technologies Inc. dated September 20, 1996. The
Registrant has been granted confidential treatment of
portions of some of the schedules to this Agreement.
Incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-KSB for the year
ending December 31, 1996.
10(f) Marketing and Supply Agreement between the Registrant and
VascA, Inc. dated January 1, 1999. Incorporated by
reference to Exhibit 10(f) to the Registrant's Annual
Report on Form 10-KSB for the year ending December 31,
1998.
21 Subsidiaries of the Registrant:
Name Under
Jurisdiction of Which it does
Name Incorporation Business
------ ------------- --------
Eastern Chemical Corporation New York Eastern Chemical Corporation
Transcontinental Processes Australia N/A
(Pty.) Ltd.*
Dieselite Corporation** Delaware N/A
Paragon Organic Chemicals, New York Paragon Organic Chemicals
Inc.
* Inactive without assets
** Inactive
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED-GUARDIAN, INC.
Dated: March 13, 2000 By: /s/ Alfred R. Globus
--------------------
Alfred R. Globus
Chief Executive Officer
& Director
Page 22
<PAGE>
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- ----------------------- --------------------------------- ---------------
By:/s/ Alfred R. Globus Chief Executive Officer, Director March 13, 2000
------------------------ (Principal Executive Officer)
Alfred R. Globus
By:/s/ Kenneth H. Globus President, General Counsel, March 13, 2000
------------------------ Director, Chief Financial
Kenneth H. Globus Officer(Principal Financial
and Accounting Officer)
By:/s/ Robert S. Rubinger Executive Vice President, March 13, 2000
------------------------ Secretary, Treasurer, Director
Robert S. Rubinger
By:/s/ Charles W. Castanza Vice President, Director March 13, 2000
------------------------
Charles W. Castanza
By:/s/ Henry P. Globus Director March 13, 2000
------------------------
Henry P. Globus
By:/s/ Benjamin Wm. Mehlman Director March 13, 2000
------------------------
Benjamin Wm. Mehlman
By:/s/ Lawrence F. Maietta Director March 13, 2000
------------------------
Lawrence F. Maietta
By:/s/ Alan Katz Director March 13, 2000
------------------------
Alan E. Katz
By:/s/ Arthur Dresner Director March 13, 2000
------------------------
Arthur Dresner
Page 23
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----------
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of December 31,
1999 and 1998 F-3 - F-4
Consolidated Statements of Earnings for the Years
Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the Years Ended
December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-21
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
United-Guardian, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
United-Guardian, Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
earnings, stockholders' equity and comprehensive income, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
United-Guardian, Inc. and Subsidiaries as of December 31, 1999 and 1998,
and the consolidated results of their operations and their consolidated
cash flows for the years then ended in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Melville, New York
February 25, 2000
F-2
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
1999 1998
--------- ---------
CURRENT ASSETS
Cash and cash equivalents ........................ $2,014,556 $1,320,610
Temporary investments............................. 1,050,238 523 192
Marketable securities............................. 286,791 81,122
Accounts receivable, net of allowance for doubtful
accounts of $60,700 and $52,894, respectively 984,791 1,300,118
Inventories ...................................... 1,311,183 1,150,132
Prepaid expenses and other current assets ........ 220,723 169,786
Deferred income taxes ............................ 174,193 176,318
---------- ----------
Total current assets ............... 6,042,475 4,721,278
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land ............................................. 69,000 69,000
Factory equipment and fixtures ................... 2,471,632 2,407,200
Building and improvements ........................ 1,980,404 1,964,646
Waste disposal plant ............................. 133,532 133,532
---------- ----------
4,654,568 4,574,378
Less accumulated depreciation .................... 3,290,120 3,041,694
---------- ----------
1,364,448 1,532,684
---------- ----------
OTHER ASSETS
Processes and patents, net ....................... 138,840 190,685
Split dollar life insurance ...................... 348,161 348,161
Other ............................................ 1,000 1,525
---------- ----------
488,001 540,371
---------- ----------
$7,894,924 $6,794,333
========== ==========
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
-------- ---------
CURRENT LIABILITIES
Dividends payable ............................$ 391,131 $ 341,820
Accounts payable ............................. 281,422 317,973
Accrued expenses ............................. 195,932 119,855
Taxes payable ................................ - 5,524
Current portion of long-term debt ............ 10,192 10,000
-------- --------
Total current liabilities ............... 878,677 795,172
-------- --------
LONG-TERM DEBT, net of current portion ........... 6,036 16,229
-------- --------
DEFERRED INCOME TAXES ............................ 10,000 10,000
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; issued and
outstanding, 4,889,339 and 4,883,139
shares, respectively ...................... 488,934 488,314
Capital in excess of par value ............... 3,343,417 3,330,874
Accumulated other comprehensive income (loss) 14,736 (330)
Retained earnings ............................ 3,153,124 2,154,074
---------- ----------
7,000,211 5,972,932
---------- ----------
$7,894,924 $6,794,333
========== ==========
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
1999 1998
----------- ------------
Revenue
Net sales ....................... $ 9,136,733 $ 8,769,738
----------- -----------
Costs and expenses
Cost of sales ................... 4,953,207 5,009,463
Operating expenses .............. 2,063,299 2,211,004
----------- -----------
7,016,506 7,220,467
----------- -----------
Earnings from operations ... 2,120,227 1,549,271
Other income (expense)
Interest expense ................ ( 581) ( 523)
Investment income................ 112,811 66,488
Gain on sale of assets .......... 4,796 31,000
Other ........................... (72) (22)
----------- -----------
Earnings before income taxes 2,237,181 1,646,214
Provision for income taxes .......... 847,000 632,677
----------- -----------
NET EARNINGS ............... $ 1,390,181 $ 1,013,537
=========== ===========
Earnings per common share (Basic
and Diluted)..................... .28 .21
=========== ===========
Basic weighted average shares ....... 4,885,770 4,880,343
=========== ===========
Diluted weighted average shares ..... 4,907,224 4,904,587
=========== ===========
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years Ended December 31, 1998 and 1999
Accumulated
Common stock Capital in other
----------------------- excess of comprehensive Retained Comprehensive
Shares Amount par value income (loss) earnings Total income
--------- ----------- ----------- --------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 4,876,839 $ 487,684 $ 3,314,210 $ 1,482,357 $5,284,251
Issuance of common stock in
connection with exercise
of stock options ....... 6,300 630 12,364 12,994
Income tax benefits on stock
options exercised ...... 4,300 4,300
Unrealized loss on
marketable securities .. $ (330) (330) $ (330)
Net earnings .............. 1,013,537 1,013,537 1,013,537
Dividends declared ........ (341,820) (341,820)
----------
Comprehensive income $1,013,207
--------- ----------- ----------- --------------- ----------- ---------- =========
Balance, December 31, 1998 4,883,139 488,314 3,330,874 (330) 2,154,074 5,972,932
Issuance of common stock in
connection with exercise
of stock options ....... 6,200 620 12,543 13,163
Unrealized gain on
marketable securities,
net of deferred income
taxes of $8,766 ........ 15,066 15,066 $ 15,066
Net earnings .............. 1,390,181 1,390,181 1,390,181
Dividends declared ........ -- -- -- (391,131) (391,131)
----------
Comprehensive income $1,405,247
--------- ----------- ----------- --------------- ----------- --------- ==========
Balance, December 31, 1999 4,889,339 $ 488,934 $ 3,343,417 $ 14,736 $ 3,153,124 $7,000,211
========= =========== =========== =============== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998
--------- ----------
Cash flows from operating activities
Net earnings ....................................$1,390,181 $1,013,537
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization ............... 312,259 614,826
Net gain on sale of equipment ............... (4,796) (31,000)
Net loss on sale of marketable securities.... 2,391 --
Provision for doubtful accounts ............. 7,806 20,238
Deferred income taxes ....................... (6,641) (79,323)
Provision for inventory obsolescence ........ 10,000 165,000
Increases (decreases) in cash resulting from
changes in operating assets and liabilities
Accounts receivable .................... 307,521 (414,790)
Inventories ............................ (171,051) 56,935
Prepaid expenses and other assets ...... (50,412) (29,934)
Accounts payable ....................... (36,551) 25,341
Accrued expenses and taxes payable ..... 70,553 (106,558)
---------- ----------
Net cash provided by operating activities .. 1,831,260 1,234,272
---------- ----------
Cash flows from investing activities
Acquisition of plant and equipment, net ......... (94,682) (271,280)
Proceeds from the sale of plant and equipment ... 7,300 31,000
Net change in temporary investments.............. (527,046) (236,347)
Purchase of marketable securities, net........... (209,082) (6,244)
Proceeds from sale of marketable securities...... 24,854
--------- ---------
Net cash used in investing activities .... (798,656) (482,871)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt .................... - 30,339
Principal payments on long-term debt ............ (10,001) (4,110)
Proceeds from exercise of stock options ......... 13,163 12,994
Dividends paid .................................. (341,820) (292,610)
--------- ---------
Net cash used in financing activities ...... (338,658) (253,387)
--------- ---------
Net increase in cash and cash equivalents 693,946 498,014
Cash and cash equivalents, beginning of year ........ 1,320,610 822,596
---------- ----------
Cash and cash equivalents, end of year ..............$2,014,556 $1,320,610
========== ==========
The accompanying notes are an integral part of these financial
statements.
F-7
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business
United-Guardian, Inc. (the "Company") is a Delaware corporation that
operates in two business segments: (1) the Guardian Laboratories
Division conducts research, product development, manufacturing and
marketing of pharmaceuticals, cosmetics, health care products,
medical devices and proprietary industrial products, and (2) the
Eastern Chemical Division distributes a line of fine organic
chemicals, research chemicals, test solutions, indicators, dyes and
reagents. Sales from the Company's two major product lines, Lubrajel
and Renacidin, accounted for approximately 67% and 70% of
consolidated sales for the years ended December 31, 1999 and 1998,
respectively.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of United-Guardian, Inc. and its wholly-owned subsidiaries,
Eastern Chemical Corporation and Paragon Organic Chemicals, Inc. All
intercompany accounts and transactions have been eliminated.
Statements of Cash Flows
For financial statement purposes (including cash flows), the Company
considers as cash equivalents all highly liquid investments with an
original maturity of three months or less. During 1999, the Company
declared a cash dividend of $.08 payable on January 7, 2000 to
stockholders of record as of December 15, 1999 aggregating $391,131.
During 1998, the Company declared a dividend of $.07 payable on
January 4, 1998 to stockholders of record as of December 12, 1998
aggregating $341,820. Cash payments for interest were $581 and $523
for the years ended December 31, 1999 and 1998, respectively. Cash
payments for income taxes were $966,869 and $772,572 for the years
ended December 31, 1999 and 1998, respectively.
Marketable Securities and Temporary Investments
Marketable securities include investments in equity mutual funds
which are classified as "Available for Sale" securities and are
reported at their fair values. Unrealized gains and losses on
"Available for Sale" securities are reported as accumulated other
comprehensive income (loss) in stockholders' equity, net of related
tax effects.
F-8
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE A (continued)
Temporary investments consist of cerificates of deposit that mature
in one year or less.
Inventories
Inventories are valued at the lower of cost or current market value.
Cost is determined using the average cost method (which approximates
FIFO). Inventory costs include material, labor and factory overhead.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation. Major replacements and betterments are capitalized
while routine maintenance and repairs are expensed as incurred.
Assets are depreciated under both accelerated and straight-line
methods. Depreciation charged to earnings as a result of using
accelerated methods was not materially different than that which
would result from using the straight-line method for all periods
presented. Certain factory equipment and fixtures are constructed by
the Company using purchased materials and in-house labor. Such
assets are capitalized and depreciated on a basis consistent with
the Company's purchased fixed assets.
Estimated useful lives are as follows:
Factory equipment and fixtures 5 - 7 years
Building 40 years
Building improvements Lesser of useful life or 20 years
Waste disposal plant 7 years
Processes and Patents
Processes and patents are amortized over periods ranging from 5 to
15 years. Amounts are shown net of accumulated amortization.
In 1998, after results of additional product testing of certain
technology, the Company determined that further modification of the
technology was necessary in order to make it commercially
marketable. Based on such facts, the unamortized balance of
approximately $204,000 was expensed. Such amount is included in
amortization expense in operating expenses for the year ended
December 31, 1998.
Long-Lived Assets
It is the Company's policy to evaluate and recognize an impairment
to its long-lived assets if it is probable that the recorded amounts
are in excess of anticipated undiscounted future cash flows.
F-9
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE A (continued)
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments
using available market information and other valuation methodologies
in accordance with SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Management of the Company believes that the
fair value of financial instruments, consisting of accounts
receivable and payable and long-term debt, approximates carrying
value due to the short payment terms associated with its accounts
receivable and payable and the interest rates associated with its
long-term debt.
Concentration of Credit Risk
Accounts receivable potentially expose the Company to concentrations
of credit risk. The Company routinely addresses the financial
strength of its customers and, as a consequence, believes that its
receivable credit risk exposure is limited. Two customers accounted
for 33% and 10% of the accounts receivable at December 31, 1999. Two
customers accounted for 30% and 18% at December 31, 1998.
Income Taxes
Deferred tax assets and liabilities reflect the future tax
consequences of the differences between the financial reporting and
tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Research and Development
The Company's research and development expenses are recorded in the
year incurred. Research and development expenses were approximately
$267,000 and $234,000 for the years ended December 31, 1999 and
1998, respectively.
Earnings Per Share Information
Basic earnings per share is based on the weighted average number of
common shares outstanding without consideration of potential common
stock. Diluted earnings per share is based on the weighted average
number of common and potential common shares outstanding. The
calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be
repurchased with the funds received from the exercise, based on the
average price during the year.
F-10
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE A (continued)
Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year amounts
to conform to the 1999 presentation.
Segment Reporting
The Company adopted the Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information" for the year ended December 31, 1998. SFAS No.
131 requires that the Company disclose certain information about its
business segments defined as "components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance."
NOTE B - INVENTORIES
Inventories consist of the following:
December 31, December 31,
1999 1998
----------- -----------
Raw materials and work-in-process ...... $ 279,851 $ 364,969
Finished products and fine chemicals ... 1,031,332 785,163
---------- ----------
$1,311,183 $1,150,132
========== ==========
NOTE C - NOTES PAYABLE - BANKS
The Company has a line of credit agreement with one bank which
provides for borrowings of up to $700,000 and expires on May 31,
2000. It is the Company's intention to renew the line of credit
agreement before it expires. Interest under each line is at the
bank's prime rate plus 1/2%. The outstanding line of credit
agreement contains financial covenants relating to minimum net
worth, working capital, current ratio, debt to capitalization and
maintenance of compensating balances. There were no outstanding
borrowings at December 31, 1999 and 1998.
F-11
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE D - LONG-TERM DEBT
During 1998, the Company financed the purchase of transportation
equipment with proceeds of an installment loan. The loan, which is
collateralized by the underlying equipment, requires monthly
payments of $868 including interest through July 31, 2001. Principal
payments under this financing are $10,192 in 2000 and $6,036 in
2001.
NOTE E - INCOME TAXES
The provision for income taxes consists of the following:
Year ended Year ended
December 31, December 31,
1999 1998
--------- ---------
Current
Federal .......................... $ 727,841 $ 607,000
State ............................ 125,800 105,000
--------- ---------
853,641 712,000
--------- ---------
Deferred
Federal .......................... (5,751) (68,689)
State ............................ (890) (10,634)
--------- ---------
(6,641) (79,323)
--------- ---------
Total provision ............ $ 847,000 $ 632,677
========= =========
The following is a reconciliation of the Company's effective income
tax rate to the Federal statutory rate:
Year ended Year ended
December 31, December 31,
1999 1998
-------------- --------------
(000's) % (000's) %
------- --- ------- ---
Tax expense at statutory Federal income
tax rate .............................. $ 756 34% $ 559 34%
State income taxes, net of Federal benefit 83 4 72 4
Nondeductible expenses.................... 1 -- 1 --
Other, net ............................... 7 -- 1 --
----- ---- ----- ----
Actual tax expense ....................... $ 847 38% $ 633 38%
===== ==== ===== ====
F-12
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE E (continued)
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
December 31, December 31,
1999 1998
----------- ------------
Deferred tax assets
Accounts receivable .................... $ 22,642 $ 19,731
Inventories ............................ 149,946 146,216
Other................................... 10,371 10,371
--------- ---------
182,959 176,318
--------- ---------
Deferred tax liabilities
Unrealized gain on marketable securities (8,766) --
Other .................................. (10,000) (10,000)
--------- ----------
(18,766) (10,000)
--------- ----------
Net deferred tax asset ..................... $ 164,193 $ 166,318
========= ==========
F-13
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F - BENEFIT PLANS
Pension Plan
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". The provisions of
SFAS No. 132 revise employers' disclosures about pension plans. It
does not change the measurement or recognition of these plans. It
standardizes the disclosure requirements for pensions to the extent
practicable.
The Company has a noncontributory defined benefit pension plan which
covers substantially all of its employees. Benefits are based on
years of service and employees' compensation prior to retirement.
Amounts are funded in accordance with the requirements of ERISA
(Employee Retirement Income Security Act of 1974) and the plan is
administered by a trustee who is responsible for payments to
retirees. The plan assets primarily consist of cash equivalents,
bonds, commercial paper and mortgage-backed securities, and are
recorded at fair value within the plan.
The following table sets forth the plan's funded status:
Year ended Year ended
December 31, December 31,
1999 1998
--------- ---------
Change in Benefit Obligation
Benefit obligation at beginning of year............. $1,319,983 $1,412,269
Service cost........................................ 57,975 66,164
Interest cost....................................... 85,313 90,800
Actuarial loss...................................... 60,003 39,173
Benefits paid....................................... (28,261) (288,423)
--------- ---------
Benefit obligation at end of year................... $1,495,013 $1,319,983
========= =========
Change in Plan Assets
Fair value of plan assets at beginning of year..... $1,086,920 $1,192,657
Actual return on plan assets....................... 35,745 92,746
Employer contributions............................. 84,500 89,940
Benefits paid...................................... (28,261) (288,423)
--------- ---------
Fair value of plan assets at end of year........... $1,178,904 $1,086,920
========= =========
Reconciliation of Funded Status
Funded status (underfunded)........................ $ (316,109) $ (233,063)
Unrecognized net actuarial loss.................... 304,931 199,422
Unrecognized transition obligation................. 13,292 17,789
Unrecognized prior service cost.................... 57,203 62,489
--------- ---------
Prepaid benefit cost............................... $ 59,317 $ 46,637
========= =========
F-14
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F (continued)
The Net Periodic Benefit Cost for the years ending December 31 includes
the following components:
December 31, December 31,
1999 1998
----------- -----------
Components of Net Periodic Benefit Cost
Service cost....................................... $ 57,975 $ 66,164
Interest cost...................................... 85,313 90,800
Expected return on plan assets..................... (87,073) (94,928)
Recognized net actuarial loss...................... 5,822 46,661
Amortization of transition obligation.............. 4,497 4,497
Amortization of prior service cost................. 5,286 5,286
--------- ---------
Net periodic benefit cost.......................... $ 71,820 118,480
========= =========
Weighted-average assumptions as of December 31:
1999 1998
----------- -----------
Discount rate...................................... 6.50% 6.50%
Expected long term rate of return.................. 8.00% 8.00%
Weighted average rate of compensation increase..... 5.55% 5.73%
Amortization method................................ Straight-Line Straight-Line
401(k) Plan
The Company maintains a 401(k) Plan for all of its employees. Under
the plan, employees may defer up to 15% of their weekly pay as a
pretax investment in a savings plan. In addition, the Company makes
a contribution of 50% of each employee's elective deferral up to 2%
of weekly pay for a 4% employee deferral. Employees become fully
vested in Company contributions after one year of employment. 401(k)
Company contributions were approximately $31,000 and $30,000 for the
years ended December 31, 1999 and 1998, respectively.
Stock Option Plans
The Company maintains two stock option plans, the 1993 Employee
Incentive Stock Option Plan ("EISOP") and the Non-Statutory Stock
Option Plan for Directors ("NSSOPD"), each of which provides for the
issuance of up to 100,000 shares of common stock. Such options are
exercisable either upon grant or after a waiting period specified in
the agreement. The Company has adopted only the disclosure
provisions of SFAS No. 123, "Accounting for Stock-based
Compensation" It applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for
its plans. Accordingly, no compensation costs have been recognized
for either plan.
F-15
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F (continued)
If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS No. 123, the
Company's net income and basic and diluted earnings per share as of
December 31, 1999 and 1998 would be reduced to the pro forma amounts
indicated below:
1999 1998
---------- -----------
Net income
As reported $ 1,390,181 1,013,537
Pro forma 1,348,849 1,009,433
Earnings per share - basic
As reported $ .28 $ .21
Pro forma .28 .21
Earnings per share - diluted
As reported $ .28 $ .21
Pro forma .27 .21
The pro forma amounts may not be representative of future disclosure
because they do not take into account pro forma compensation expense
related to grants made before 1995. The fair value of these options
was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
for the year ended December 31, 1999: expected volatility of 64.3%
to 64.9%; risk-free interest rates of 5.07% to 5.48%; expected life
of three to five years; and expected dividends of 2.5%. No stock
options were granted under either of the plans in 1998.
F-16
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F (continued)
The following summarizes the stock option transactions under both Plans:
Weighted
Weighted average
average fair value
Number exercise at date
EISOP outstanding price of grant
- ----- ------------ ------- ----------
Options outstanding, January 1, 1998 48,750 $3.38
Exercised (4,300) 2.06
-------
Options outstanding, and exercisable
December 31, 1998 44,450
-------
Granted 23,200 3.03 $1.49
Exercised (200) 2.06
Surrendered/Expired (2,350) 3.16
-------
Options outstanding, and exercisable
at December 31, 1999 65,100 3.34
=======
Available for grant, December 31, 1999 20,100
=======
NSSOPD
- ------
Options outstanding, January 1, 1998 22,000 $2.58
Exercised (4,000) 5.00
Expired (2,000) 2.06
------
Options outstanding at December 31, 1998 16,000 2.04
------
Granted 8,000 3.00 $1.24
Exercised (6,000) 2.13
------
Options outstanding at December 31, 1999 18,000 2.49
======
Excercisable at December 31, 1999 10,000 2.09
======
Available for grant December 31, 1999 64,000
======
F-17
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE F (continued)
Summarized information about stock options outstanding under the two
plans at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding Average Average Exercisable Average
Prices at Remaining Exercise at Exercise
December 31,1999 Contractual Price December 31,1999 Price
Life
--------------- ---------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
EISOP
- -----
$1.88 - $3.30 44,100 7.85 $2.55 44,100 $2.55
$5.00 21,000 4.07 5.00 21,000 5.00
- ------------- ------ ---- ----- ------ -----
$1.88 - $5.00 65,100 6.63 $3.49 65,100 $3.34
NSSOPD
- --------
$1.88 - $3.00 18,000 2.89 $2.50 10,000 $2.09
</TABLE>
NOTE G - RELATED PARTY TRANSACTION
The Company has a split dollar life insurance arrangement with Alfred R.
Globus, its Chairman and Chief Executive Officer (the "Insured"). Prior
to 1999, the Company had been making non-interest-bearing advances of
approximately $86,000 or 87% of the cost of a $1,500,000 life insurance
policy, which is owned by a trust of which the Insured is the grantor and
another officer, Kenneth H. Globus, is a beneficiary. Under a collateral
assignment agreement, the proceeds from the policy will first be paid to
the Company to repay the advances it made. If the policy is terminated
prior to the death of the Insured, the Company will be entitled to the
cash surrender value of the policy at that time, and any shortfall
between that amount and the amount of the advances made by the Company
will be repaid to the Company by the Insured. In April, 1999, the face
amount of the policy was reduced to $1,000,000, and no premium payments
were made on the policy in 1999, allowing the cash value to cover the
premium cost. As of December 31, 1999 and 1998, advances of $348,161 are
recorded in the Consolidated Balance Sheet under "Other Assets".
F-18
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE H - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share at December 31, 1999 and 1998:
1999 1998
---------- ----------
Numerator:
Net earnings $1,390,181 1,013,537
Denominator:
Denominator for basic earnings
per share (weighted average shares) 4,885,770 4,880,343
Effect of dilutive securities:
Employee stock options 21,454 24,244
--------- ---------
Denominator for diluted earnings per
share (adjusted weighted-average
shares) and assumed conversions 4,907,224 4,904,587
========= =========
Basic and diluted earnings per share $ 0.28 $ 0.21
========= =========
Options to purchase 21,000 and 21,750 shares of the Company's common
stock have been excluded from the computation of diluted earnings
per share in 1999 and 1998 as their inclusion would be antidilutive.
NOTE I - 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 policies used to develop segment information
correspond to those described in the summary of significant
accounting policies. 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
years ended December 31, 1999 and 1998.
F-19
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE I (continued)
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ----------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers $ 7,321,871 $ 1,814,862 $ 9,136,733 $ 7,230,783 $ 1,538,955 $ 8,769,738
Depreciation and amortization 172,392 - 172,392 483,030 - 483,030
Segment earnings (loss) before
income taxes 2,269,346 31,371 2,300,717 1,819,443 (103,934) 1,715,509
Segment assets 2,321,345 542,683 2,864,028 2,659,964 591,550 3,251,514
Expenditure for segment assets 45,863 - 45,863 88,627 - 88,627
Reconciliation to Consolidated Amounts
Earnings before income taxes
- ----------------------------
Total earnings for reportable segments $ 2,300,717 $ 1,715,509
Other earnings 116,954 96,943
Corporate headquarters expense (180,490) (166,238)
--------- ---------
Consolidated earnings before income taxes $ 2,237,181 $ 1,646,214
Assets
- ------
Total assets for reportable segments $ 2,864,028 $ 3,251,514
Corporate headquarters 5,030,896 3,542,819
--------- ---------
Total consolidated assets $ 7,894,924 $ 6,794,333
========= =========
</TABLE>
F-20
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999 and 1998
NOTE I (continued)
<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 $ - $ 581 $ 581 $ - $ 523 $ 523
Expenditures for assets 45,863 48,820 94,683 88,627 182,653 271,280
Depreciation and amortization 172,292 139,865 312,157 483,030 131,796 614,826
</TABLE>
<TABLE>
<CAPTION>
Geographic Information
- ----------------------
1999 1998
---------------------- ----------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
United States $ 5,346,641 $ 1,503,288 $ 4,911,053 $ 1,723,369
France 850,498 1,219,667
Other countries 2,939,594 2,639,018
--------- --------- --------- ---------
$ 9,136,733 $ 1,503,288 $ 8,769,738 $ 1,723,369
========= ========= ========= =========
Major Customers
- ---------------
Customer A (Guardian) $ 2,190,899 $ 1,702,079
Customer B (Guardian) 777,342 1,146,414
All other customers 6,168,492 5,921,245
--------- ---------
$ 9,136,733 $ 8,769,738
========= =========
</TABLE>
NOTE J - CONTINGENCIES
While the Company has product claims arise from time to time in the
ordinary course of its business, the Company is not currently
involved in any material product claims. Historically, the
settlement of such claims has not had a material adverse effect on
the Company's financial position and results of operations.
F-21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,014,556
<SECURITIES> 1,337,029
<RECEIVABLES> 1,045,491
<ALLOWANCES> 60,700
<INVENTORY> 1,311,183
<CURRENT-ASSETS> 6,042,475
<PP&E> 4,654,568
<DEPRECIATION> 3,290,120
<TOTAL-ASSETS> 7,894,924
<CURRENT-LIABILITIES> 878,677
<BONDS> 0
0
0
<COMMON> 488,934
<OTHER-SE> 3,343,417
<TOTAL-LIABILITY-AND-EQUITY> 7,894,924
<SALES> 9,136,733
<TOTAL-REVENUES> 9,136,733
<CGS> 4,953,207
<TOTAL-COSTS> 4,953,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 581
<INCOME-PRETAX> 2,237,181
<INCOME-TAX> 847,000
<INCOME-CONTINUING> 1,390,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,390,181
<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
