UNITED GUARDIAN INC - Annual Report: 2008 (Form 10-K)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
1O-K
(Mark
One)
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þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the fiscal year ended December 31,
2008
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
__________ to ____________
Commission
file number 1-10526
UNITED-GUARDIAN,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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11-1719724
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(State
or other jurisdiction
of
incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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230 Marcus Blvd., Hauppauge,
NY
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11788
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (631)
273-0900
Securities
registered pursuant to Section l2(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $.10 par value
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The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o No þ
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 þ No
o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or
information
statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form
10-K. þ
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act (check one):
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company þ
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|||
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not check if a smaller
reporting
company.)
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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.)Yes ¨ No þ
As of the last business day of the
registrant’s most recently completed second fiscal quarter, the
aggregate market value of the registrant's common stock held by
non-affiliates (based on the closing sales price of such shares on what was then
the American Stock Exchange) was approximately $26,553,798. (For the
purpose of this report it has been assumed that all officers and directors of
the Registrant, as well as all stockholders holding 10% or more of Registrant's
stock, are affiliates of the Registrant).
As of March 1, 2009, the Registrant had
issued 5,008,639 shares of Common Stock, $.10 par value per share ("Common
Stock"), of which 4,946,439 shares were outstanding and 62,200 held as Treasury
Stock.
DOCUMENTS
INCORPORATED BY REFERENCE:
Certain information required
by Part III (portions of Item 10, as well as
Items 11, 12, and 13)
is incorporated by reference from the Registrant's
definitive proxy statement for the 2009 annual meeting
of stockholders ("2009 Proxy Statement"), which, pursuant
to Regulation 14A of the Securities Exchange Act of 1934, as amended,
is to be filed with the Securities and Exchange
Commission no later than 120 days after Registrant's fiscal year
end.
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Page 2 of 2
This
annual report on Form 10-K 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 United States
Securities and Exchange Commission ("SEC"). 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. Business.
(a) Introduction
United-Guardian,
Inc. ("United", "Registrant", or “Company”) is a Delaware corporation that,
through its Guardian Laboratories Division ("Guardian"), conducts research,
product development, manufacturing and marketing of cosmetic ingredients,
personal and health care products, pharmaceuticals, and specialty industrial
products. Until December 11, 2007, United also distributed an extensive line of
fine organic chemicals, research chemicals, test solutions, indicators, dyes and
reagents through its wholly owned Eastern Chemical Corporation ("Eastern")
subsidiary. On December 11, 2007, with Registrant as Guarantor,
Eastern sold substantially all of its assets to Pfaltz & Bauer,
Inc. Registrant has dissolved the Eastern corporate entity, as well
as the corporate entity of Paragon Organic Chemicals, Inc. (“Paragon”), another
wholly owned subsidiary of the Registrant that acted as a purchasing entity for
Eastern. Unless otherwise specified or indicated by the context, "Company" shall
refer only to United-Guardian, Inc. and its Guardian division, and shall not
include Eastern or Paragon.
United's
predecessor, United International Research Corp. (which name was later changed
to United International Research, Inc. ("UIR")), was founded and incorporated in
New York in 1942 by Dr. Alfred R. Globus, United's Chairman and Director of
Research. On February 10, 1982, a merger took place between UIR and Guardian
Chemical Corp. ("GCC"), an affiliate of UIR, whereby GCC was merged into UIR and
the name was changed to United-Guardian, Inc., a New York corporation. On
September 14, 1987, United-Guardian, Inc. (New York) was merged with and into a
newly formed Delaware corporation by the same name, United-Guardian, Inc., for
the purpose of changing the domicile of United.
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Until
December 11, 2007 the Company operated two business segments:
(1) Guardian conducts research,
product development, manufacturing and marketing of cosmetic ingredients,
personal and health care products, pharmaceuticals, and specialty industrial
products. The research and development department not only develops new products
but also modifies and refines existing products, with the goal of expanding the
potential markets for the Company's products.
Guardian
has a broad range of products, some of which are currently marketed, some of
which are marketable but are not currently marketed by the Company, and some of
which are still in the developmental stage. Of the products being actively
marketed, the two largest product lines are the LUBRAJEL® line of cosmetic
ingredients and medical lubricants, which accounted for approximately 76.9% of
the Company's sales in 2008, and its RENACIDIN®
IRRIGATION, a pharmaceutical product that accounted for approximately 18.0% of
the Company's sales in 2008. The Company actively seeks other companies as
potential marketers for its products, particularly for those products that are
not yet being actively marketed by the Company or the Company’s marketing
partners.
(2) Eastern was a distributor of
fine organic chemicals, research chemicals, intermediates, reagents, indicators,
dyes and stains. On December 11, 2007, substantially all of Eastern’s
assets were sold to Pfaltz & Bauer, Inc. Eastern carried an extensive line
of products which it sold throughout the United States as well as overseas.
Eastern's products were primarily sold either to distributors for resale in
smaller quantities or as intermediates and raw materials for further chemical
processing. Sales quantities ranged from a few hundred grams to over a thousand
kilos per shipment. Although Eastern conducted no chemical manufacturing, it did
contract with several custom chemical manufacturers and also would
package-to-order for those customers that required it.
Paragon
functioned solely as a purchasing entity for Eastern. It had no assets or sales
of its own. As part of the sale of substantially all of Eastern’s
assets to Pfaltz & Bauer the Company also sold to them the Paragon trade
name.
Eastern’s business is reported as a
discontinued operation in the financial statements incorporated
herein.
(b) Narrative Description of
Business
Guardian
conducts research, product development, manufacturing and marketing of many
different cosmetic ingredients, personal and health care products,
pharmaceuticals, and specialty industrial products, all of which were developed
by Guardian, and many of which have unique properties. Many of Guardian's
products are marketed through collaborative agreements with larger companies.
The personal care products manufactured by Guardian, including the cosmetic
ingredients, are marketed to end-users through the Company's worldwide network
of marketing partners and distributors, and are currently used by many of the
major international cosmetic and personal care products
companies. The Company sells product outright to its marketing
partners, FOB the Company’s plant in Hauppauge, New York, and those marketing
partners in turn resell those products to their customers, who are typically the
end-users of the products. The products are not sold on a consignment basis, so
unless a product is determined to be defective it is not returnable except at
the discretion of the Company.
The
Company’s pharmaceutical products are marketed by direct advertising, mailings,
and trade exhibitions, and are sold to end-users primarily through the major
drug wholesalers, which purchase the Company’s products outright for resale to
their customers. The Company’s pharmaceutical products are returnable
only at the discretion of the Company unless (a) they are found to be defective,
or (b) they are
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outdated
but within one year after their expiration date, which is in accordance with
standard pharmaceutical industry practice. The Company also has a small amount
of pharmaceutical sales directly to hospitals and pharmacies. The
non-pharmaceutical medical products and the specialty industrial products are
sold directly by the Company to the end-users.
During
2008, Guardian's sales were $12,292,147. Because Eastern was
discontinued in 2007, there were no Eastern sales in 2008. Eastern’s
sales in fiscal year 2007 prior to the sale of its assets and discontinuation of
its operations on December 11, 2007 were $841,060.
Products
The
Company operates in one business segment and serves several end
markets:
PERSONAL
CARE
LUBRAJEL is an extensive line
of water-based moisturizing and lubricating gel formulations that are used as
ingredients in personal care and medical products. In the personal
care industry they are used primarily as moisturizers and bases for other
cosmetic ingredients, and can be found as an ingredient in skin creams,
moisturizers, makeup, and body lotions. For medical products its
primary use is as a lubricant. The largest selling product in the LUBRAJEL line
in 2008 was LUBRAJEL CG, the original form of LUBRAJEL, followed by LUBRAJEL
Oil. Some of the other varieties of LUBRAJEL sold for cosmetic use
(all using the LUBRAJEL name) are MS, DV, TW, NP, WA, and LUBRAJEL II
XD. In addition, many of the above products are available without
paraben preservatives and are designated with the word 'Free' after the name
(for example, LUBRAJEL MS Free).
LUBRAJEL PF is a
preservative-free form of LUBRAJEL currently being marketed primarily by Societe
D'Etudes Dermatologiques ("Sederma"), a subsidiary of Croda International Plc
(“Croda”), under Sederma’s tradename "Norgel". Sederma is the Company's
marketing partner and distributor in France and, along with its parent company,
Croda, is a major supplier of cosmetic ingredients in Europe. It is also
distributed by some of the Company's other marketing partners under the name
LUBRAJEL PF. Tests conducted by Sederma indicated that the product
self-preserved, and aided in the preservation of other cosmetic ingredients with
which it was formulated.
LUBRASIL™ is a special type of
LUBRAJEL in which silicone oil is incorporated into a LUBRAJEL base by
microemulsification, thereby maintaining much of the clarity of regular
LUBRAJEL. The product has a silky feel, and is water resistant while
moisturizing the skin. The newest products in the LUBRASIL line are the new
LUBRASIL II products, which currently consist of LUBRASIL II DM and LUBRASIL II
SB. Both products contain substantially higher levels of silicone than the
original LUBRASIL products, and are intended to be additions to the line, not
replacements for the original LUBRASIL.
LUBRAJEL II XD is a version of
LUBRAJEL that was developed to be a drop-in replacement for one of the
competitive products to LUBRAJEL.
KLENSOFT™ is a surfactant (a
surface active agent, such as a soap or detergent that can reduce the surface
tension of a liquid and thus allow it to foam or penetrate solids or act as a
wetting agent) that can be used in shampoos, shower gels, makeup removers, and
other cosmetic formulations. The primary customer for
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KLENSOFT
for many years has been in Taiwan, but over the past few years there have been
new customers for the product in the United Kingdom, Australia, France and South
Korea. Historically, Klensoft sales to the Taiwanese customer have been
inconsistent from year-to-year. As a result, sales of Klensoft in
2008 increased by more than 200% compared with 2007, principally as a result of
the buying patterns of that customer.
UNITWIX® is a cosmetic
additive used as a thickener for oils and oil-based liquids. It is a
proprietary, unpatented product.
Each of
the following products accounts for less than 1% of the Company’s
sales:
CONFETTI™ DERMAL DELIVERY
FLAKES is a product line introduced in 2000 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 meet the needs of individual
customers. Sales of this product have declined over the
years.
ORCHID COMPLEX™ is a successor
product to Guardian's previous Oil of Orchids product, and is a base for skin
creams, lotions, cleansers, and other cosmetics. It is an extract of fresh
orchids, modified by extractants, stabilizers, and preservatives, and is
characterized by its excellent lubricity, spreadability, light feel, and
emolliency. Because of its alcohol solubility, it may also be used in fragrance
products such as perfumes and toiletries. Its emolliency makes it an excellent
additive to shampoos, bath products and facial cleansers. It is also a superior
emollient for sunscreens, vitamin creams, toners and skin serums. It is sold in
two forms, water-soluble and oil-soluble. Sales of this product have
not reached the level originally anticipated by the Company.
LUBRASLIDE™ and a related
product, B-122™, are powdered lubricants used in the manufacture of such
cosmetics as pressed powders, eye liners, and rouges. They are used as binders
for these products, increasing water-repellency and drop strength, and lowering
the coefficient of friction.
RAZORIDE™ is a clear,
hypo-allergenic, non-foaming, water-based shaving product that is surfactant-
and soap-free and has excellent lubricity and moisturizing
properties. It is intended to be a finished product, not an
ingredient. There were no sales of this product in 2008.
PLEXAJEL™ ASC is a water-based gel
product that was developed to produce clear, low pH personal care products with
moisturizing properties. The original intended use for this product
has not materialized.
AQUATHIK™ is a powder that is
used as a gelling agent for aqueous solutions or emulsions with a pH below
7.
HYDRAJEL™ PL and HYDRAJEL VM are personal
lubricants and moisturizers originally developed specifically for the feminine
personal care market.
The Company believes that its ability
to increase sales of its LUBRAJEL products for cosmetic and other personal care
uses will depend on (a) the ability of its marketing partners, especially
International Specialty Products ("ISP"), its largest marketing partner, to
continue to aggressively promote the Company’s products, particularly to new
customers, and (b) the Company's success in developing new forms of LUBRAJEL
that will enable the product to be used in new applications. Guardian is
continuing to develop new varieties of LUBRAJEL to extend the line even further,
and is working with its marketing partners to find new marketing
opportunities.
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The
Company believes that there is still significant potential to expand the sales
of its LUBRAJEL line of products through product modifications, additional claim
substantiation, and geographic expansion, especially in such developing markets
as mainland China, India, and Eastern Europe.
The Company also believes that any
potential sales increases in the LUBRAJEL line of products may be offset by
sales of competitive products. However, there are a limited number of
competitors to the Company’s LUBRAJEL product line, and the Company believes
that, because of the proprietary nature of the LUBRAJEL formulations, the strong
brand name identity, the cost to the end-user of reformulation, the Company’s
long history of supplying quality products, and the Company’s continuing product
development programs, it will continue to be able to compete effectively in the
marketplace and expand the market for its LUBRAJEL product line.
MEDICAL
LUBRAJEL RR and RC are
water-based gels used primarily as lubricants for
catheters. Both are special grades of LUBRAJEL that
can withstand sterilization by gamma radiation, which is one of the methods of
terminally sterilizing medical and hospital products. On April 11, 1995, the
Company was granted a U.S. patent for these unique forms of LUBRAJEL. LUBRAJEL
RR was the original radiation resistant product. LUBRAJEL RC was developed
specifically for one customer that packages the product in unit doses as a
catheter lubricant for many manufacturers.
LUBRAJEL MG is the original
form of LUBRAJEL developed for medical use, and is used by many medical device
manufacturers for lubricating urinary catheters, prelubricated enema tips, and
other medical devices.
LUBRAJEL LC was developed for
a specific customer who required a product suitable for oral use in a line of
mouth moisturizers. Sales of this product have increased steadily over the past
few years and now represent about 2.6% of the Company’s sales.
LUBRAJEL FLUID is a very low
viscosity form of LUBRAJEL that was developed to provide superior lubrication in
water-soluble products. It was specifically developed, and is
currently being used, as a replacement for silicone oils in pre-lubricated
condoms.
Sales of
all of the medical grades of LUBRAJEL l increased by 13.0% and accounted for
approximately 16.0% of the Company’s sales in 2008 compared with 14.6% in
2007.
PHARMACEUTICAL
RENACIDIN is a urological
prescription drug that is used primarily to prevent and to dissolve
calcifications in catheters implanted in the urinary bladder. It is marketed as
a ready-to-use sterile solution under the name RENACIDIN IRRIGATION. It is also
approved for use in dissolving certain types of kidney stones. It
currently has regulatory approval only in the United States.
CLORPACTIN® WCS-90 is an antimicrobial
product used primarily in urology and surgery for treating a wide range of
localized infections in the urinary bladder, the peritoneum, the abdominal
cavity, the eye, ear, nose and throat, and the sinuses. The product is a white
powder that is mixed with water and used as a solution. It is a powerful
disinfectant, fungicide, and deodorizer.
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INDUSTRIAL
DESELEX™ Liquid is a
sequestering and chelating agent that is a replacement for phosphates in the
manufacture of detergents.
POLYCOMPLEX M and Q are complexing agents
capable of producing clear solutions of specific water-insoluble
materials.
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, personal care (including cosmetic), health care, and specialty chemical
industries. These products are in various stages of development, some currently
marketable and some in the very early stages of development requiring a
substantial amount of development work to bring them to market. Research is also
being done on new uses for currently marketed products.
Prior
to initiating research and development work on a product, market research is
done to determine the marketability of the product, including the potential
market size and the most effective method of marketing the product. After that,
the research and development department will determine whether the product can
be successfully developed, including (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; and (c) laboratory efficacy tests to determine the effectiveness of
the product under different conditions.
If
the initial development work is successful, further development work to bring
the product to market will continue, including some or all of the following: (a)
clinical studies needed to determine safety and effectiveness of drug or medical
device products; (b) preparatory work for the filing of Investigational New Drug
Applications or New Drug Applications; (c) scaling up from laboratory production
batches to pilot batches to full scale production batches.
While
there can be no assurance that any particular project will result in a new
marketable product or a commercially successful product, the Company believes
that a number of its development projects, including those discussed below, may
have commercial potential if the Company's development efforts are
successful.
Guardian's
major research focus is on the development of new and unique ingredients for
cosmetic and other personal care products. The following are some of the
projects that Guardian is either working on or intends to work on in the near
future:
CLORONINE: 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 had been developed many
years ago, and has since been reformulated. The Company has been working with an
Ohio-based company that is interested in finding new markets for CLORONINE as a
disinfecting agent. There can be no assurance that the Company’s efforts to
market this product will be successful.
EMOLIEN: A new
water-based emollient and moisturizer. It is intended to be a
cost-effective emollient (0.5% to 0.2%) to increase lubricity and moisturization
for creams, lotions and gels, as well as other potential uses.
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ESSENTIAL ELEMENTS (COPPER/ZINC
PEPTIDES): A new product for skin and hair care
applications. The specifics cannot be disclosed until patentability
issues are investigated further, but the product would be used to maintain and
improve healthy cellular metabolism.
NATURAL POLYMER BLEND: A line
of polysaccharide polymers from natural sources (sourced from vegetables and
micro-organisms), suitable as a thickener and emulsion stabilizer.
LUBRAJEL UT: A form
of LUBRAJEL with a new ingredient that may have medical uses. This
product is still under development and will be discussed more fully after the
appropriate patent filings are made.
It should be understood that many of
the projects listed above are in their early stages of development, and there
can be no assurance that marketable products will result from any of these
research and development projects.
The
Company expects its research and development costs for 2009 to be comparable to
those of the last two fiscal years. Any additional increase in development
and/or production costs will depend on whether capital investments are required
in order to continue development work on, or to manufacture, any of the new
products under development.
Trademarks
and Patents
The Company strongly believes in
protecting its intellectual property and intends, whenever reasonably possible
and economically practical, to obtain patents in connection with its product
development program. The Company currently holds many United States patents and
trademarks relating to its products, and regularly has patent and trademark
applications pending with respect to a number of its research and development
products. Some patents previously issued to the Company on certain products have
expired. There can be no assurance that any patents held by the Company will be
valid or otherwise of value to the Company, or that any patent applied for will
be granted. However, the Company 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 Company in its business
are of varying importance to the Company. The most significant products for
which the Company has registered trademarks are LUBRAJEL and
RENACIDIN.
Set forth below is a table listing certain
information with respect to all unexpired U.S. patents held by the
Company. The Company does not anticipate that the expiration of
the patents that are expiring during 2009 will have any material impact on the
Company’s revenue. The Company also has one or more patents
pending.
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PATENT NAME
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PATENT #
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FILING
DATE
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ISSUE
DATE
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EXPIRATION
DATE
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||||||||||||
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|
||||||||||||||||
|
Stable, active chlorine-containing
antimicrobial
compositions ("Cloronine")
|
5,128,342 | 10/1987 | 7/1992 | 7/2009 | ||||||||||||
| 5,023,355 | 6/1990 | 6/1991 | 6/2010 | |||||||||||||
|
Radiation-resistant lubricating
gel
|
5,405,622 | 12/1993 | 4/1995 | 12/2013 | ||||||||||||
|
Delivery system for oil-soluble actives in cosmetic
and
personal
care products
|
6,117,419 | 9/1996 | 9/2000 | 12/2016 | ||||||||||||
|
|
||||||||||||||||
|
Microemulsion of silicone in a water-based gel
that
forms
a clear, transparent, highly stable moisturizer
and lubricant for cosmetic and medical use
|
6,348,199 | 1/1994 | 2/2002 | 2/2019 | ||||||||||||
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The
Company requires all employees and consultants who may receive proprietary
information to agree in writing to keep such proprietary information
confidential.
Domestic
Sales
In the United States, Guardian's
cosmetic products are marketed and distributed exclusively by ISP in accordance
with a marketing agreement entered into in 1996 and subsequently amended and
expanded in 2000, 2002, and 2005 (see "Marketing Agreements" below).
ISP also has certain rights to sell some of Guardian's other industrial and
medical products. The Company is currently in the process of
extending its marketing agreement with ISP, and expects to have a new agreement
in place by the end of the second quarter of 2009.
The Company's domestic sales of
pharmaceutical products are handled primarily through the major full-line drug
wholesalers and account for approximately 21.4% of the Company's sales. The
Company's other products, such as its medical (non-pharmaceutical) and specialty
industrial products, are sold directly to end- users.
Foreign
Sales
In 2008
and 2007, approximately 57.0% of the Company’s sales were to customers in
foreign countries, primarily sales of its cosmetic ingredients to customers in
Europe and Asia. The Company currently has six distributors for its personal
care products outside the United States, with ISP being the largest. ISP has
global distribution rights with the exception of the following: S. Black Ltd. (a
subsidiary of The Azelis Group) in the United Kingdom; Sederma SAS (a subsidiary
of Croda) in France; Luigi & Felice Castelli S.R.L. in Italy; S. Black Gmbh
(a subsidiary of S. Black Ltd.) in Switzerland; and C&M International in
South Korea. The Company also has significant direct sales to a
company in Ireland, Harmac Medical Products Ltd., for one of the Company’s
LUBRAJEL products for a medical use.
Marketing
Guardian
markets its products through marketing partners, distributors, advertising in
medical and trade journals, mailings to physicians and to the trade, and
exhibitions at medical meetings. The pharmaceutical products are sold in the
United States primarily to drug wholesalers, which in turn distribute and resell
those products to drug stores, hospitals, physicians, long-term care facilities,
and the Veteran's Administration and other government agencies. The proprietary
cosmetic and other personal care products are sold outright (not on consignment)
to the Company’s marketing partners, which in turn market and resell the
products to cosmetic and other personal care manufacturers for use as
ingredients or additives in the manufacture or compounding of their
products. The medical (non-pharmaceutical) and specialty industrial
products are sold by the Company directly to the end-users.
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Marketing
Agreements
In
1994, the Company entered into a marketing agreement with ISP whereby ISP would
market and distribute Guardian's personal care products, as well as some medical
and specialty industrial products, in certain parts of Europe, Asia, Australia,
and Africa. ISP manufactures and markets globally an extensive line of personal
care, pharmaceutical, and industrial products. In 1996, the parties entered into
another agreement, extending ISP’s distribution rights to the United States,
Canada, Mexico, and Central and South America. In July 2000, the parties entered
into an Exclusive Marketing Agreement (the "2000 Agreement"), which modified,
extended, and consolidated the 1994 and 1996 agreements. The 2000 Agreement also
gave the Company greater flexibility in appointing other marketing partners in
areas where ISP was not active or had not been successful, gave ISP certain
additional territories, and granted ISP exclusivity in the territories assigned
to it as long as annual minimum purchase requirements were met.
In
December 2002, the parties entered into a letter agreement that extended and
modified the 2000 Agreement. This was further modified in December 2005 to
extend ISP's marketing rights until December 2008, and to provide for automatic
extensions until December 2010 if specified minimum annual purchase levels were
attained. It also specified guidelines and provisions for future price increases
by the Company. Although ISP did not attain the sales levels required
for the automatic extension, the Company is in the process of negotiating an
extension of ISP’s marketing rights, which it expects to have in place by the
end of the second quarter of 2009.
The
Company believes that in the event ISP were to cease marketing Guardian's
products, alternative arrangements could be made to continue to supply products
to customers currently using Guardian's products without any
significant interruption of supply.
The
Company has other marketing arrangements with marketing partners in the U.K.,
France, Switzerland, South Korea, and Italy, but all of these other arrangements
are operating under either verbal agreements or expired written agreements, and
are subject to termination at any time by either party.
Raw
Materials
The
principal raw materials used by the Company consist of common industrial organic
and inorganic chemicals. Most of these materials are available in ample supply
from numerous sources. The Company has five major raw material vendors that
account for approximately 90% of the raw material purchases by the
Company. The names of the suppliers of the Company’s major raw
materials, as well as the raw materials themselves, are considered by the
Company to be confidential and proprietary information.
Inventories;
Returns and Allowances
The
Company's business requires that it maintain moderate inventories of certain of
its finished goods. Historically, returns and allowances have not been a
significant factor in the Company's business.
Backlog
The Company currently does not have any
significant backlog.
Customers
The
Company’s customers are primarily its marketing partners and
distributors. They in turn sell the Company’s products to hundreds of
end-users. As a result, although the Company has relatively few
Page
9
companies
that it sells to directly (i.e., its marketing partners and distributors), it is
not dependent on any one of those companies for the sale of its
products. The Company is confident that if any of its marketing
partners or distributors were to decide not to sell the Company’s products, the
end-users of its products would still purchase the Company’s products, either
directly from the Company or from a replacement marketing partner or
distributor.
Competition
Guardian
has many products or processes that are either proprietary formulations or have
some unique characteristics, and therefore are not in direct competition with
the products or processes of other pharmaceutical, personal care, chemical, or
health care companies. However, the pharmaceutical, health care, and cosmetic
industries are all highly competitive, and the Company 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 Company is engaged, many of which have
substantially greater financial, research, manpower, marketing and distribution
resources than the Company. In addition, there are many large, integrated and
established pharmaceutical, chemical and cosmetic companies that have greater
capacity than the Company to develop and to commercialize types of products upon
which the Company's research and development programs are based. However, the
Company believes that the expense of testing and evaluating possible substitutes
for the Company's products that are already in customers' formulations, as well
as the expense to the customer in relabeling its products, is a significant
barrier to displacing the Company's products in current customer formulations.
These cost factors make it less likely that a customer would choose a
competitive product unless there was a significant cost savings in doing so. The
Company believes that manufacturing, regulatory, distribution and marketing
expertise will be increasingly important competitive factors in favor of the
Company. In this regard, the Company believes that its marketing arrangements
with its global marketing partners will be important in the commercialization of
many of the products it is currently developing.
ISO-9001:2000
Registration
In
December 2003, United earned ISO 9001:2000 registration from Underwriters
Laboratories, Inc., indicating that United's documented procedures and overall
operations had attained the high level of quality needed to comply with this ISO
certification level. United has been in continuous compliance with
this standard since that initial approval. Prior to that, in November
1998 United had earned ISO-9002 registration. Guardian expects to be certified
in October 2009 for compliance with the new ISO 9001:2008 standard.
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 Company's
products. The Company and many of the Company's products are subject to certain
government regulations. Products that may be developed and sold by the Company
in the United States may require approval from federal regulatory agencies, such
as the United States Food and Drug Administration ("FDA") as well as state
regulatory agencies. Products that may be developed and sold by the Company
outside the United States may require approval from foreign regulatory agencies.
Any medical device products developed by the Company will be subject to FDA
regulation, and will usually require a 510(k) pre-market notification to the FDA
to demonstrate that the device is at least as safe and effective as a legally
marketed device. The Company would then need to receive clearance
from the FDA prior to marketing the device. Most new 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.
Page
10
Guardian
is required to comply with all pertinent Good Manufacturing Practices of the FDA
for medical devices and drugs. Accordingly, the regulations to which Guardian
and certain of its products may be subject, and any changes with respect
thereto, may materially affect Guardian's ability to produce and market new
products developed by the Company.
The
Company'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 Company's operating expenses are directly attributable to complying with
federal, state, and local environmental statutes and regulations. In 2008, 2007,
and 2006 the Company incurred approximately $27,000, $25,000, and $47,000
respectively, in environmental compliance costs. There was no material financial
or other impact on the Company as a result of compliance with environmental
laws.
Research
and Development Expense
Portions
of the Company's operating expenses are directly attributable to the research
and development that the Company performs. In 2008 and 2007, the Company
incurred approximately $423,000 and $420,000, respectively, in research and
development expenses, which are included in operating expenses. No portion of
the research and development expenses was directly paid by the Company's
customers.
Employees
The
Company presently employs 39 people, 6 of whom serve in an executive capacity,
21 in research, quality control and manufacturing, 6 in maintenance and
construction, and 6 in office and administrative work. Of the total number of
employees, 38 are full-time employees. None of the Company's employees are
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are very good.
Item
1A. Risk Factors.
Not
applicable.
None.
Item
2.
Properties.
The
Company maintains its principal office and factory, and conducts most of its
research, at a 50,000 square foot facility on a 2.7 acre parcel at 230 Marcus
Boulevard, Hauppauge, New York 11788, which the Company owns. Of the
50,000 square feet, approximately 30,000 square feet is manufacturing space,
15,000 square feet is warehouse space, and 5,000 square feet is office and
laboratory space. The Company has now fully developed the 2.7 acres, and fully
utilizes the building occupying the land. The Company believes that the
aforementioned property is adequate for its immediately foreseeable needs. The
property is presently unencumbered and is adequately insured.
Page
11
Item
3. Legal
Proceedings.
The
Company is not aware of any pending or threatened litigation against the
Company.
Item
4. Submission of
Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market
for Registrant’s Common Equity,
Related Stockholder
Matters and
Issuer
Purchases of Equity Securities.
Market
Information
The common stock of United has traded
on The NASDAQ Stock Market LLC (“NASDAQ”) since March 16, 2009, under the symbol
"UG". From December 1, 2008 through March 13, 2009, following the
merger of the American Stock Exchange with the New York Stock Exchange, it was
traded on the NYSE Amex stock exchange under the same symbol. Prior
to December 1, 2008 its stock traded on the American Stock Exchange under the
same symbol.
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, 2007
to December 31, 2008. The quotations represent prices between dealers and do not
include retail markup, markdown or commission:
|
Quarters
|
Year
Ended
December 31, 2008
|
Year
Ended
December 31, 2007
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||||||
|
First
|
(1/1
- 3/31)
|
$ | 10.90 | $ | 9.92 | $ | 9.45 | $ | 8.54 | ||||||||
|
Second
|
(4/1
- 6/30)
|
12.75 | 10.08 | 13.35 | 9.23 | ||||||||||||
|
Third
|
(7/1
- 9/30)
|
12.15 | 10.00 | 14.60 | 8.75 | ||||||||||||
|
Fourth
|
(10/1
- 12/31)
|
10.44 | 7.60 | 10.85 | 10.05 | ||||||||||||
Holders
of Record
As of March 1, 2009, there were 1,025
holders of record of Common Stock.
Cash
Dividends
On May
14, 2008, the Company’s Board of Directors declared a semi-annual cash dividend
of $0.27 per share, which was paid on June 16, 2008 to all stockholders of
record as of June 2, 2008. On December 3, 2008, the Company’s Board
of Directors declared a cash dividend of $0.28 per share, which was paid on
January 5, 2009 to all stockholders of record as of December 15,
2008.
Page
12
On May 16, 2007, the Company’s Board of
Directors declared a semi-annual cash dividend of $0.27 per share, which was
paid on June 15, 2007 to all stockholders of record as of June 1,
2007. On December 6, 2007, the Company’s Board of Directors declared
a cash dividend of $0.28 per share, which was paid on January 7, 2008 to all
stockholders of record as of December 17, 2007.
Item
6. Selected Financial
Data.
Not applicable
Item
7. Management's
Discussion and Analysis of Financial
Condition and Results of Operation.
Critical Accounting
Policies
The
Company’s consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles. Preparation of
financial statements requires the Company to make estimates and assumptions
affecting the reported amounts of assets, liabilities, revenues, and expenses
and the disclosure of contingent assets and liabilities. The Company
uses its historical experience and other relevant factors when developing its
estimates and assumptions, which are continually evaluated. Note A,
Nature of Business and Summary of Significant Accounting Policies, of the Notes
to Consolidated Financial Statements, included in Item 8, Financial Statements
and Supplementary Data, of this annual report on Form 10-K includes a discussion
of the Company’s significant accounting policies. The following
accounting policies are those that the Company considers critical to an
understanding of the consolidated financial statements because their application
places the most significant demands on the Company’s judgment. The
Company’s financial results might have been different if other assumptions had
been used or other conditions had prevailed.
Marketable
Securities
The
Company accounts for its marketable securities in accordance with SFAS 115,
Accounting for Certain Investments in Debt or Equity Securities. The
Company classifies its marketable securities as available-for-sale at the time
of purchase and re-evaluates such designation as of each consolidated
balance sheet date. The Company’s marketable securities include
investments in equity mutual funds, government securities, and corporate
bonds. The Company’s marketable securities are reported at fair value
with the related unrealized gains and losses included in accumulated other
comprehensive income (loss), a component of stockholders’
equity. Realized gains or losses on the sale of marketable securities
are determined using the specific-identification method and are insignificant
for the years ended December 31, 2008 and 2007. The Company evaluates
its investments periodically for possible other-than-temporary impairment by
reviewing factors such as the length of time and extent to which fair value had
been below cost basis, the financial condition of the issuer and the Company’s
ability and intent to hold the investment for a period of time which may be
sufficient for anticipated recovery of market value. The
Company would record an impairment charge to the extent that the cost of the
available-for-sale securities exceeds the estimated fair value of the securities
and the decline in value is determined to be
other-than-temporary. During 2008 the Company did not record an
impairment charge regarding its investment in marketable securities because,
based on management’s evaluation of the circumstances, management believes that
the decline in fair value below the cost of certain of the Company’s marketable
securities is temporary.
Page
13
Revenue
Recognition
The
Company recognizes revenue when products are shipped, title and risk of loss
pass to customers, persuasive evidence of a sales arrangement exists, and
collections are reasonably assured. Any allowances for returns are
taken as a reduction in sales within the same period the revenue is
recognized. Such allowances are based on historical experience as
well as other factors that, in the Company’s judgment, could reasonably be
expected to cause sales returns or doubtful accounts to differ from historical
experience.
Accounts Receivable
Allowance
The
Company performs ongoing credit evaluations of the Company’s customers and
adjusts credit limits, as determined by review of current credit
information. The Company continuously monitors collection and
payments from customers and maintains an allowance for doubtful accounts based
upon historical experience, the Company’s anticipation of uncollectible accounts
receivable and any specific customer collection issues that have been
identified. While the Company’s credit losses have historically been
low and within expectations, the Company may not continue to experience the same
credit loss rates that have historically been attained. The
receivables are highly concentrated in a relatively small number of customers.
Therefore, a significant change in the liquidity, financial position, or
willingness to pay timely, or at all, of any one of the Company’s significant
customers would have a significant impact on the Company’s results of operations
and cash flows.
Inventory Valuation
Allowance
In
conjunction with the Company’s ongoing analysis of inventory valuation,
management constantly monitors projected demand on a product by product
basis. Based on these projections management evaluates the levels of
write-downs required for inventory on hand and inventory on order from contract
manufacturers. Although the Company believes that it has been
reasonably successful in identifying write-downs in a timely manner, sudden
changes in buying patterns from customers, either due to a shift in product
interest and/or a complete pull back from their expected order levels, may
result in the recognition of larger than anticipated write-downs.
Results
Of Operation:
Year Ended December 31, 2008 compared
with Year Ended December 31, 2007
Revenue
Revenue in 2008 increased by $403,585
(3.4%) compared with 2007. This increase was primarily
attributable to increases in sales in three product lines:
|
(a)
|
Personal Care
products: Revenue from the sales of personal care
products, including cosmetic ingredients, increased by
$100,206 (1.3%) for the year ended December 31,
2008 when compared with 2007. All of the increase was
attributable to price increases on the personal care products, which
amounted to approximately 7% for the year. The volume of sales
of these products decreased by approximately 6% for the
year. Almost all of the increase in revenue was the result of
increased sales of the Company’s extensive line of LUBRAJEL products. The
Company believes that the decrease in volume was primarily due to ordering
patterns of the Company’s customers, and not the result of any decrease in
demand for these products.
|
Page
14
|
(b)
|
Pharmaceuticals: Revenue
from the sales of the Company’s pharmaceutical products increased by
$145,038 (5.8%) for the year ended December 31, 2008 compared with
2007. This increase was primarily due to a price increase of
4%, which was implemented on April 1,
2008.
|
|
(c)
|
Medical (non-pharmaceutical)
products: Revenue from the sales of the Company’s
non-pharmaceutical medical products increased $226,501 (13.1%) when
compared with 2007. Approximately 7% of this increase was the
result of a price increase; the balance was due to increased demand as
well as the buying patterns of its
customers.
|
Revenue
was also impacted slightly by a decrease of $29,092 (21.5%) in revenue from the
Company’s line of specialty industrial products, and an increase of $32,573
(12.5%) in sales discounts and allowance reserves.
In
the personal care market, the Company's sales to ISP, its largest marketing
partner, increased by 6.0% in 2008 compared with 2007. The Company's
five other marketing partners for personal care products exhibited both
increases and decreases in 2008 compared with 2007. The net effect was that the
Company’s combined sales to those five marketing partners decreased 8.0% in 2008
compared with 2007. The Company attributes most of this decrease to purchasing
patterns and stocking levels rather than to any significant decrease in demand
for the Company’s products..
Overall,
total revenue from the sales of LUBRAJEL products to all customers increased by
4.4% in 2008 compared with 2007. It is estimated that price increases accounted
for approximately 7% of this increase for all but two of the products in the
LUBRAJEL line (which did not increase in price in 2008). The volume
of all LUBRAJEL products sold, both for personal care and medical uses,
decreased by approximately 2.2% in 2008 compared with 2007.
The
Company's sales of its two pharmaceutical products increased by 5.8% in 2008
compared with 2007. Both RENACIDIN and CLORPACTIN sales were
up, but approximately 4% of the revenue increase was due to the price increase
rather than an increase in volume.
Cost
of Sales
Cost
of sales as a percentage of sales in 2008 increased to 44.0% from 40.8% in the
prior year. The increase was primarily due to an increase in the cost of one of
the Company's primary raw materials, as well as increases in overhead costs and
a decrease in production volumes. Overhead increases were mainly due
to increases in factory expense, shipping expense, intangible amortization, and
indirect labor expenses.
Operating
Expenses
Operating
expenses increased by $102,595 (4.0%) in 2008 compared with the prior year. This
increase was mainly due to increases in payroll and payroll related expenses,
which were partially offset by a decrease in consulting fees.
Other
Income (Expense)
The
Company has interest income from certificates of deposit, money market funds,
and bonds, and dividend income from both stock and bond mutual funds. Other
income (net) decreased $99,352 (17.0%) for the year ended December 31, 2008,
which was mainly attributable to a decrease in investment income of $113,068 in
2008. This decrease was primarily attributable to a decline in
interest rates on the certificates of
Page
15
deposit,
money market funds, and bonds. The company realized a
loss on the sale of fixed assets of $7,763 during 2008, while realizing a gain
on the sale of fixed assets of $5,000 during 2007.
Discontinued
Operations
In
December 2007 the Company realized a gain of $84,361 (net of income taxes of
$45,396) on the sale of substantially all of the assets of its Eastern
subsidiary. Income from operations of Eastern during 2007 prior to
the sale amounted to $32,862 (net of income taxes of $19,600). The
Company believes that the absence of cash flows from the discontinuation of
Eastern will not have a significant impact on the Company’s future
liquidity.
Provision
for Income Taxes
The
provision for income taxes decreased $91,581 (5.7%) in 2008 compared with 2007.
This decrease was mainly due to a decrease in earnings from continuing
operations before taxes of $355,735 (7.1%) in 2008 when compared with
2007. The Company’s effective income tax rate was approximately 32%
for each year.
Liquidity
and Capital Resources
Working
capital decreased from $13,400,692 at December 31, 2007 to $13,236,680 at
December 31, 2008, a decrease of $164,012 (1.2%). The current ratio decreased to
6.1 to 1 at December 31, 2008 from 6.7 to 1 at December 31, 2007. The
decrease in working capital and in the current ratio reflects usual fluctuations
in working capital components associated with the Company’s normal business
activities.
Accounts
receivable increased by $102,626 in 2008 compared with 2007. This was
mainly due to one customer paying more slowly than in prior
years. The average period of time that an account receivable was
outstanding was approximately forty days for both 2008 and 2007. The
Company has a bad debt reserve of $30,000, and believes that the balance of its
accounts receivable is fully collectable.
On
January 17, 2007 the Company entered into a line of credit agreement with
JPMorgan Chase Bank for borrowings of up to $2,000,000 at an interest rate of
1.0% below the Prime Rate. The line of credit expired June 30,
2008. The Company decided that the cost of maintaining the line of
credit was no longer justified, since the Company had no foreseeable need for
the line. For that reason, the Company has chosen not to renew
it.
The
Company generated cash from operations of $3,412,385 in 2008 compared with
$4,161,063 in 2007. The decrease in 2008 was primarily due to increases in
accounts receivable and inventory, and a decrease in net income, which were
offset by an increase in accounts payable and a decrease in prepaid
expenses.
Cash used
in investing activities was $1,813,705 for the year ended December 31, 2008
compared with $229,851 for the year ended December 31, 2007. The change was
mainly due to an increase in the purchases of marketable securities in
2008.
Cash used
in financing activities was $2,728,530 and $2,403,311 during the years ended
December 31, 2008 and 2007, respectively. The increase was primarily due to the
increase in the dividend declared in December 2007 (which was paid in January
2008) to $0.28 per share from the $0.22 per share dividend that was declared in
December 2006 (and paid in January 2007). The Company believes that its working
capital is sufficient to support its operating requirements for the next fiscal
year. The Company's long-term liquidity
Page
16
position
will be dependent upon its ability to generate sufficient cash flow from
profitable operations. The Company has no material commitments for future
capital expenditures.
Commitments
The
Company currently has approximately $15,721 in lease commitments. Of
this amount, $6,738 is due in 2009, $6,738 is due in 2010, and the
remaining $2,245 is due in
2011.
The Company has an outstanding loan for
the purchase of an automobile, the balance of which, approximately $6,657, is
due in 2009.
New
Accounting Pronouncements
See Note
A to the financial statements regarding new accounting
pronouncements.
Patent
Expirations
The
following of the Company's patents expired over the past two fiscal
years:
|
1.
|
Renacidin
Irrigation – expired October 2007
|
|
2.
|
Iodophor;
polyethylene glycol alkyl aryl sulfonate iodine complex – expired
April 2008
|
|
3.
|
Iodophor;
biocide; reacting polyethylene glycol, alkyl aryl sulfonate and iodine
water-propylene glycol solvent refluxing – expired April
2008
|
|
4.
|
Thermal-resistant
microbial agent ("Cloronine") – expired December
2008
|
|
5.
|
Use
of Clorpactin for the treatment of animal mastitis & the
applicator used in that treatment (owned jointly by the Company and
JohnsonDiversey Inc.) – expired December
2008
|
The
Company does not believe that the expiration of any of these patents will have a
material impact on the Company's revenues.
Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk.
Not
Applicable
Item
8. Financial
Statements and Supplementary Data.
Annexed
hereto starting on page F-1
Item
9. Changes
in and Disagreements With Accountants on
Accounting and Financial Disclosure.
None
Page
17
Item
9A(T). Controls and Procedures.
|
(a)
|
Evaluation of
Disclosure Controls and
Procedures
|
The
Company’s management, with the participation of the Company’s Principal
Executive Officer and Principal Financial Officer, has evaluated the design,
operation, and effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, or the “Exchange Act”) as of December 31, 2008. On
the basis of that evaluation, management concluded that the Company’s disclosure
controls and procedures are designed, and are effective, to provide reasonable
assurance that the information required to be disclosed in reports filed or
submitted pursuant to the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the SEC,
and that such information is accumulated and communicated to management,
including its Principal Executive Officer and Principal Financial Officer as
appropriate to allow timely decisions regarding required
disclosure.
|
(b)
|
Management’s Report on
Internal Control Over Financial
Reporting
|
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). The Company’s internal control system is
designed to provide reasonable assurance to management and to the Company’s
Board of Directors regarding the preparation and fair presentation of published
financial statements. Under the supervision and with the participation of
management, including the Company’s Principal Executive Officer and Principal
Financial Officer, management conducted an evaluation of the effectiveness of
the Company’s internal control over financial reporting based on the framework
in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on management’s evaluation under the framework in
Internal Control—Integrated
Framework, management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2008.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report.
|
(c)
|
Changes in Internal
Control over Financial
Reporting
|
There
were no changes in the Company’s internal control over financial reporting that
occurred in the fourth quarter of 2008 that materially affected, or would be
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
|
(d)
|
Limitations
of the Effectiveness of Internal
Controls
|
The
effectiveness of the Company’s system of disclosure controls and procedures and
internal control over financial reporting is subject to certain limitations,
including the exercise of judgment in designing, implementing and evaluating the
control system, the assumptions used in identifying the likelihood of future
events, and the inability to eliminate fraud and misconduct completely. As a
result, there can be no assurance that the Company’s disclosure controls and
procedures and internal control over financial reporting will detect all errors
or fraud. However, the Company’s control systems have been designed
to provide reasonable assurance of achieving their objectives, and the Company’s
principal executive officer and principal financial officer have concluded that
the Company’s disclosure controls and procedures and internal control over
financial reporting are effective at the reasonable assurance
level.
Page
18
Item
9B. Other
Information.
On July
10, 2007, the Company received a letter from the Market Regulation Department of
the Financial Industry Regulatory Authority (“FINRA”), on behalf of the American
Stock Exchange, advising the Company that FINRA was conducting a review of
trading activity in the Company's common stock from April 2, 2007 through May 7,
2007. FINRA requested various documents and information related to the Company's
earnings announcement on May 8, 2007. The Company provided all of the
information that was requested, and on May 2, 2008 FINRA informed the Company
that it has concluded its review and referred its findings to the
SEC. The letter made clear that the review should not be construed as
indicating that any violations of federal securities laws or AMEX Conduct Rules
had occurred. The Company has heard nothing further on this matter
from either FINRA or the SEC.
By letter
dated December 11, 2008 the Company was informed by the SEC that it had reviewed
the Company’s annual Form 10-K filing for the fiscal year ended December 31,
2007, as well as its quarterly Form 10-Q filings for the first three quarters of
2008. It had a number of comments and suggestions, most of which were
related to the presentation of the Company’s financial statements. On
December 29, 2008 the Company responded to the letter, indicating that it would,
as requested by the SEC, implement the SEC’s suggestions in future filings, and
would also immediately file an amendment to its 2007 Form 10-K to make a
correction to the wording of Item 9A(T). By letter dated
January 8, 2009 the SEC notified the Company that it had completed its review
and had no further comments, and on that same date the Company filed an
amendment to its Form 10-K to make the requested correction.
PART
III
Item
10. Directors,
Executive Officers and Corporate Governance.
Directors
and Executive Officers
Set
forth in the table below is certain information as of March 1, 2009 with respect
to the executive officers and Directors of the Registrant:
|
Name
|
Age
|
Position(s) with
Registrant
|
|
Dr.
Alfred R. Globus
|
88
|
Chairman
of the Board of Directors, Director of
Research
|
|
Kenneth
H. Globus
|
57
|
President,
General Counsel, and Director
|
|
Robert
S. Rubinger
|
66
|
Executive
Vice President, Chief Financial Officer, Secretary and
Director
|
|
Charles
W. Castanza
|
76
|
Senior
Vice President
|
|
Joseph
J. Vernice
|
50
|
Vice
President, Manager of Research and Development, Director of Technical
Services
|
|
Peter
A. Hiltunen
|
50
|
Vice
President, Production Manager
|
|
Cecile
M. Brophy
|
60
|
Treasurer,
Principal Accounting Officer, and Controller
|
|
|
||
|
Henry
P. Globus
|
86
|
Director
|
|
Lawrence
F. Maietta
|
51
|
Director
|
|
Arthur
M. Dresner
|
67
|
Director
|
|
Andrew
A. Boccone
|
63
|
Director
|
|
Christopher
W. Nolan, Sr.
|
44
|
Director
|
Page
19
Dr.
Alfred R. Globus has been Chairman of the Board of Directors and Director of
Research of the Company since its inception in 1942. He served as President from
1942 until 1988, and as Chief Executive Officer from 1988 until
2006.
Kenneth
H. Globus has been President and General Counsel of the Company since July 1988.
He also served as Chief Financial Officer from 1997 until 2006. He has been a
director since 1984.
Robert
S. Rubinger has been Executive Vice President and Secretary of the Company since
July 1988, Treasurer from May 1994 until May 2004, and Chief Financial Officer
since December 2006. He has been a director since 1982.
Charles
W. Castanza has been Senior Vice President of the Company since March 2000. He
served as Operations Manager of Chemicals and Pharmaceuticals of the Company
from February 1982 until April 1986. He was a director from 1982 until
2006.
Joseph
J. Vernice has been a Vice President of the Company since February 1995. He has
been Manager of Research and Development since 1988, and Director of Technical
Services since 1991.
Peter
A. Hiltunen has been a Vice President of the Company since July 2002. He has
been Production Manager since 1982.
Cecile
M. Brophy has been Treasurer of the Company since May 2004. She has served as
Controller since November 1997. She has been the Company’s Principal
Accounting Officer since the beginning of her employment with the Company in
1994, and from May 1994 until November 1997, she served as manager of the
accounting department of the Company, including its former Eastern
subsidiary.
Henry
P. Globus has been a consultant to the Company since July 1988. He served as
Executive Vice President of the Company from February 1982 until July 1988. He
has been a director since 1947.
Lawrence
F. Maietta has been a partner in the public accounting firm of Bonamassa,
Maietta & Cartelli, LLP in Brooklyn, NY since October 1991. He was
controller for the Company from October 1991 until November 1997, and a director
since February 1994.
Arthur
M. Dresner has been Counsel to the law firm of Duane Morris LLP since August
2007. From January 2003 to August 2007, he was a partner in the law
firm of Reed Smith, LLP. From 1998 to 2003, he was Of Counsel to that firm as
well as to the law firm of McAulay, Nissen, Goldberg & Kiel LLP, which
combined with Reed Smith in 2000. From 1974 until 1997, he was employed as a
Vice President in corporate
Page
20
development
and general management of International Specialty Products Inc. in Wayne, New
Jersey. He has been a director of the Company since April 1997.
Andrew
A. Boccone is an independent business consultant. From 1990 to his retirement in
2001, he was President of Kline & Company, a leading international business
consulting and research firm that he joined in 1974, developing
growth strategies and providing business solutions for many multinational
chemical companies. Prior to joining Kline & Company Mr. Boccone served in
various management positions at American Cyanamid. He has been a director of the
Company since November 2002.
Christopher W. Nolan, Sr. has been a Managing
Director in the Mergers & Acquisitions group of Rabobank International, New
York, NY, since March 2006, and an Executive Director in that same group from
2002 through 2006. From 2000 to 2002, he was a Vice President–Mergers,
Acquisitions and Corporate Advisory for Deutsche Bank Securities, Inc., New
York, NY. From 1992 to 2000, he was a Vice President–Corporate Development
and Investor Relations for International Specialty Products Inc. in Wayne, NJ.
He has been a director of the Company since January 2005, and also serves
on the Board of Directors and Audit Committee of Escala Group, Inc., a publicly
traded global collectibles network.
Kenneth
H. Globus is the son of Henry P. Globus and the nephew of Alfred R. Globus.
There are no other family relationships between any directors or officers of the
Company.
The
directors are elected to serve for one year or until the next Annual Meeting of
Stockholders and until their successors have been elected and
qualified. Officers, like all Company employees, are hired on an
at-will basis.
The Company is not aware of any
officer, ex-officer, or director being involved in any legal
proceedings.
Audit
Committee Members and Financial Expert
The
Board of Directors has an Audit Committee that meets with the Company's
independent auditors to review the plan, scope and results of its audits. The
Audit Committee consists of three of the Company's Directors, each of whom is
considered an independent, outside director by NASDAQ. The Chairman of the Audit
Committee is Arthur Dresner; the other two members are Andrew A. Boccone and
Christopher W. Nolan, Sr.
The
Company does not have a "financial expert" (as that term is defined by the SEC)
on its Audit Committee due to the expense involved in placing another
independent director on its Board of Directors and Audit Committee who would
qualify as such. While all three Audit Committee members have experience in
reading, understanding, and analyzing financial statements, none has the
experience necessary to qualify as a "financial expert" under the SEC
guidelines. One of the Company's other directors, Lawrence F. Maietta, is a
Certified Public Accountant with experience in preparing and analyzing financial
statements and would qualify as a "financial expert" if it were not for the fact
that he receives payment from the Company to assist in the preparation of its
financial reports, and for that reason, even though he is considered
"independent" by the NASDAQ, he would not be deemed independent for the purposes
of membership on the Audit Committee, and therefore cannot serve on the Audit
Committee. Mr. Maietta now serves as an expert financial advisor to the Audit
Committee in lieu of having a financial expert on the committee. In
addition, Christopher W. Nolan, Sr. is considered "financially sophisticated" as
that term is defined by NASDAQ.
Page
21
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics that applies to all
officers, directors, and employees serving in any capacity to the Company,
including the Chief Executive Officer and/or President, Chief Financial Officer,
and Principal Accounting Officer. A copy of the Company's Code of Business
Conduct and Ethics is available on the Company's web site at
http://www.u-g.com/corporate. The Company intends to satisfy the disclosure
requirement under Item 5.05 of Form 8-K relating to amendments to or waivers
from any provision of its Code of Business Conduct and Ethics applicable to
Chief Executive Officer, Chief Financial Officer and Principal Accounting
Officer by posting this information on the Company's web site.
Section
16(a) Beneficial Ownership Reporting Compliance
The
information required by this section is incorporated herein by reference from
the section entitled "Directors and Executive Officers - Section 16(a)
Beneficial Ownership Reporting Compliance" of Registrant's 2009 Proxy
Statement.
Item
11. Executive
Compensation.
The
information required by this item is incorporated herein by reference from the
section entitled "Compensation of Directors and Executive Officers" of
Registrant's 2009 Proxy Statement.
Item
12. Security
Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
Information
required to be set forth hereunder has been omitted and will be incorporated by
reference, when filed, from Registrant's 2009 Proxy Statement.
Item
13. Certain Relationships and
Related Transactions, and
Director Independence.
Information
required to be set forth hereunder has been omitted and will be incorporated by
reference, when filed, from Registrant's 2009 Proxy Statement.
Item
14. Principal Accountant Fees and
Services.
Audit
Fees
The
aggregate fees that have been, or are expected to be, billed by Eisner LLP, the
Company’s principal accountant, to the Company for the review and audit of the
Company's financial statements for 2008, including the Company's quarterly
reports on Form 10-QSB and its annual report on Form 10-K, amount to
approximately $64,000 (including out-of-pocket expenses). The aggregate fees
billed by Eisner LLP to the Company for the review and audit of the Company's
quarterly and annual financial statements for 2007 were approximately $89,200
(including out-of-pocket expenses).
Page
22
Audit-Related Fees
During
2007 Eisner LLP billed the Company $10,000 in fees related to the Company's
compliance with section 404 of the Sarbanes-Oxley Act ("SOX Compliance"). No
other fees were billed by Eisner LLP for the last two years that were reasonably
related to the performance of the audit or review of the Company's financial
statements and not reported under "Audit Fees" above.
Tax Fees
There
were no other fees billed by Eisner LLP during the last two fiscal years for
professional services rendered for tax compliance, tax advice, and tax planning.
Accordingly, none of such services were approved pursuant to pre-approval
procedures or permitted waivers thereof.
All Other Fees
In
2008 and 2007, Eisner LLP billed the Company a total of $4,000 and $4,500,
respectively, for non-audit related matters. All of the services described above
were approved by the Audit Committee. Accordingly, none of such services were
approved pursuant to pre-approval procedures or permitted waivers
thereof.
Pre-Approval Policies and
Procedures
Engagement
of accounting services by the Company is not made pursuant to any pre-approval
policies and procedures. Rather, the Company believes that its accounting firm
is independent because all of its engagements by the Company are approved by the
Company's Audit Committee prior to any such engagement.
The
Audit Committee of the Company's Board of Directors meets periodically to review
and approve the scope of the services to be provided to the Company by its
independent registered public accounting firm, as well to review and discuss any
issues that may arise during an engagement. The Audit Committee is responsible
for the prior approval of every engagement of the Company's Independent
Registered Public Accounting Firm to perform audit and permissible non-audit
services for the Company (such as quarterly reviews, tax matters, consultation
on new accounting and disclosure standards, and, in future years, reporting on
management's internal controls assessment).
Before
the auditors are engaged to provide those services, the Chief Financial Officer
and Controller will make a recommendation to the Audit Committee regarding each
of the services to be performed, including the fees to be charged for such
services. At the request of the Audit Committee, the Independent Registered
Public Accounting Firm and/or management shall periodically report to the Audit
Committee regarding the extent of services being provided by the Independent
Registered Public Accounting Firm, and the fees for the services performed to
date.
Page
23
Item
15. Exhibits and Financial
Statement Schedules.
|
(a)
|
Documents
filed as part of this report.
|
|
|
(i)
|
Consolidated
Financial Statements - see Item 8. Financial Statements
and Supplementary Data
|
|
|
(ii)
|
Consolidated
Financial Statement Schedules – None
|
|
|
(Financial
statement schedules have been omitted either because they are not
applicable, not required, or the information required to be set forth
therein is included in the financial statements or notes
thereto.)
|
||
|
(iii)
|
Report
of Independent Registered Public Accounting Firm.
|
|
|
(iv)
|
Notes
to Consolidated Financial Statements.
|
|
|
(b)
|
Exhibits
|
|
|
The
exhibits listed on the accompanying Exhibit Index are filed as part of
this Annual Report.
|
||
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
UNITED-GUARDIAN,
INC.
By: /s/ Ken
Globus
Kenneth
H. Globus
President & Director
Date:
March 19, 2009
Page
24
Pursuant to the requirements of the
Securities Exchange Act of 1934, 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: (not
available)
|
Chairman
of the Board of Directors and
|
N/A
|
|
Alfred R. Globus
|
Director
of Research
|
|
|
By: /s/ Kenneth H.
Globus
|
President,
General Counsel, Director
|
March
19, 2009
|
|
Kenneth H. Globus
|
|
|
|
|
||
|
|
||
|
By: /s/ Robert S.
Rubinger
|
Executive
Vice President, Secretary,
|
March
19, 2009
|
|
Robert S. Rubinger
|
Chief Financial Officer,
Director
|
|
|
|
||
|
|
||
|
By: /s/ Charles
W. Castanza
|
Senior
Vice President
|
March
19, 2009
|
|
Charles W. Castanza
|
|
|
|
|
||
|
|
||
|
By: /s/ Cecile M.
Brophy
|
Treasurer,
Principal Accounting Officer
|
March
19, 2009
|
|
Cecile M. Brophy
|
|
|
|
|
||
|
|
||
|
By: /s/ Henry P.
Globus
|
Director
|
March
19, 2009
|
|
Henry P. Globus
|
|
|
|
|
||
|
|
||
|
By: /s/ Lawrence
F. Maietta
|
Director
|
March
19, 2009
|
|
Lawrence
F. Maietta
|
|
|
|
|
||
|
|
||
|
By: /s/ Arthur M.
Dresner
|
Director
|
March
19, 2009
|
|
Arthur M. Dresner
|
|
|
|
|
||
|
|
||
|
By: /s/ Andrew A.
Boccone
|
Director
|
March
19, 2009
|
|
Andrew
A. Boccone
|
|
|
|
|
||
|
|
||
|
By: /s/
Christopher W. Nolan, Sr.
|
Director
|
March
19, 2009
|
|
Christopher W. Nolan, Sr.
|
|
Page
25
EXHIBIT
INDEX
Exhibit
# Description
|
2
|
Certificate
of Merger of United-Guardian, Inc. (New York) with and into
United-Guardian, Inc. (Delaware) 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
|
(a)
|
Certificate
of Incorporation of United 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)
|
By-laws
of United. Incorporated by reference to Exhibit 4.2 to the 1987
8-K.
|
|||
|
4
|
(a)
|
Specimen
Certificate for shares of common stock of the United. Incorporated by
reference to Exhibit 4(a) to the 1988 10-K.
|
|||
|
100
|
(a)
|
Qualified
Retirement Income Plan for Employees of the Company, 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 United 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)
|
Exclusive
Distributor Agreement between United and ISP Technologies Inc., dated July
5, 2000. Incorporated by reference to Exhibit 10(d) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000.
|
|||
|
10
|
(d)
|
Letter
Amendment between United and ISP Technologies Inc. dated December 20, 2005
amending the Exclusive Distributor Agreement between United and ISP
Technologies Inc. dated July 5, 2000. Incorporated by reference to Exhibit
10(d) to the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2005.
|
|||
|
10
|
(e)
|
Asset
Purchase Agreement between United, Eastern, and Pfaltz & Bauer, Inc.
dated November 19, 2007. Incorporated by reference to Exhibit
10(e) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.
|
|||
|
21
|
Subsidiaries
of United:
|
||||
|
Name
|
Jurisdiction
of
Incorporation
|
Name
Under Which
it does
Business
|
|||
|
Dieselite
Corporation (Inactive)
|
Delaware
|
N/A
|
|||
|
31
|
.1
|
Certification
of Kenneth H. Globus, President of United, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
31
|
.2
|
Certification
of Robert S. Rubinger, Chief Financial Officer of United, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.1
|
Certification
of Kenneth H. Globus, President of United, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.2
|
Certification
of Robert S. Rubinger, Chief Financial Officer of United, pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
Page
26
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Financial
Statements
|
|
|
Consolidated Statements of
Income for the years ended
|
|
|
December
31, 2008 and 2007
|
F-3
|
|
Consolidated Balance Sheets as of
December 31, 2008
and
2007
|
F-4
- F-5
|
|
Consolidated Statements of Stockholders'
Equity for the
years
ended December 31, 2008 and 2007
|
F-6
|
|
|
|
|
Consolidated Statements of Cash Flows
for the years
ended
December 31, 2008 and 2007
|
F-7
|
|
Notes to Consolidated Financial
Statements
|
F-8
- F-23
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
United-Guardian,
Inc.
We have
audited the accompanying consolidated balance sheets of United-Guardian, Inc.
and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders’ equity and cash flows
for each of the years then ended. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits include consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. 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, 2008 and 2007, and the consolidated
results of their operations and their consolidated cash flows for each of the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
As
discussed in Note F to the consolidated financial statements, effective December
31, 2007, the Company curtailed and froze benefits under its defined benefit
pension plan.
/s/
EISNER LLP
New York,
New York
March 19,
2009
F-2
CONSOLIDATED
STATEMENTS OF INCOME
|
Year ended December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Net
sales
|
$ | 12,292,147 | $ | 11,888,562 | ||||
|
Costs
and expenses
|
||||||||
|
Cost of
sales
|
5,411,404 | 4,854,031 | ||||||
|
Operating
expenses
|
2,698,671 | 2,596,076 | ||||||
| 8,110,075 | 7,450,107 | |||||||
|
Income from
operations
|
4,182,072 | 4,438,455 | ||||||
|
Other
income (expense)
|
||||||||
|
Investment
income
|
492,443 | 579,032 | ||||||
|
(Loss) gain on sale of
assets
|
(7,763 | ) | 5,000 | |||||
| 484,680 | 584,032 | |||||||
|
Income from continuing
operations before
income taxes
|
4,666,752 | 5,022,487 | ||||||
|
Provision
for income taxes
|
1,503,821 | 1,595,402 | ||||||
|
Income from continuing
operations
|
3,162,931 | 3,427,085 | ||||||
|
Income
from discontinued operations, net of tax
|
--- | 32,862 | ||||||
|
Gain
on sale of Eastern, net of tax
|
--- | 84,361 | ||||||
|
Income
from discontinued operations
|
--- | 117,223 | ||||||
|
Net
income
|
$ | 3,162,931 | $ | 3,544,308 | ||||
|
Earnings
per common share (basic and diluted) :
|
||||||||
|
Income
from continuing operations
|
$ | 0.64 | $ | 0.69 | ||||
|
Income
from discontinued operations
|
$ | ---- | $ | 0.03 | ||||
|
Total
(basic and diluted)
|
$ | 0.64 | $ | 0.72 | ||||
|
Weighted
average shares (basic)
|
4,946,439 | 4,944,943 | ||||||
|
Weighted
average shares (diluted)
|
4,946,439 | 4,945,923 | ||||||
See Notes
to Consolidated Financial Statements
F-3
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
December 31
|
||||||||
|
2008
|
2007
|
|||||||
|
Current
assets
|
||||||||
|
Cash and cash
equivalents
|
$ | 3,425,538 | $ | 4,555,388 | ||||
|
Certificates of
deposit
|
812,952 | 555,829 | ||||||
|
Marketable
securities
|
8,239,183 | 7,465,417 | ||||||
|
Accounts receivable, net of
allowance for doubtful
|
||||||||
|
accounts of $30,000 in 2008 and 2007
|
1,381,012 | 1,278,386 | ||||||
|
Inventories (net)
|
1,344,579 | 1,188,222 | ||||||
|
Prepaid expenses and other
current assets
|
226,330 | 427,714 | ||||||
|
Deferred income
taxes
|
355,798 | 222,970 | ||||||
|
Assets of discontinued
operations
|
--- | 64,619 | ||||||
|
Total current
assets
|
15,785,392 | 15,758,545 | ||||||
|
Certificates
of deposit, due 2010
|
271,976 | --- | ||||||
|
Property,
plant, and equipment
|
||||||||
|
Land
|
69,000 | 69,000 | ||||||
|
Factory equipment and
fixtures
|
3,288,808 | 3,233,621 | ||||||
|
Building and
improvements
|
2,431,908 | 2,335,975 | ||||||
|
Waste disposal
plant
|
133,532 | 133,532 | ||||||
| 5,923,248 | 5,772,128 | |||||||
|
Less accumulated
depreciation
|
4,971,269 | 4,818,731 | ||||||
|
Net
property, plant, and equipment
|
951,979 | 953,397 | ||||||
|
Other
assets
|
||||||||
|
Pension
asset
|
123,589 | 174,096 | ||||||
|
Other
|
150,687 | 148,430 | ||||||
|
Total
other assets
|
274,276 | 322,526 | ||||||
|
Total
assets
|
$ | 17,283,623 | $ | 17,034,468 | ||||
See Notes
to Consolidated Financial Statements
F-4
CONSOLIDATED BALANCE
SHEETS
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Current
liabilities
|
||||||||
|
Dividends
payable
|
$ | 1,385,003 | $ | 1,385,003 | ||||
|
Accounts
payable
|
187,810 | 123,290 | ||||||
|
Loans payable, current
portion
|
6,657 | 7,988 | ||||||
|
Accrued expenses
|
969,242 | 794,186 | ||||||
|
Liabilities of discontinued
operations
|
--- | 47,386 | ||||||
|
Total
current liabilities
|
2,548,712 | 2,357,853 | ||||||
|
Loans
payable
|
--- | 6,657 | ||||||
|
Deferred
income taxes
|
28,616 | 139,862 | ||||||
| 28,616 | 146,519 | |||||||
|
Contingencies
(Note J)
|
||||||||
|
Stockholders’
equity
|
||||||||
|
Common stock, $.10 par value;
10,000,000
|
||||||||
|
shares authorized;
5,008,639 shares issued
|
||||||||
|
and 4,946,439
shares outstanding in 2008
|
||||||||
|
and
2007
|
500,864 | 500,864 | ||||||
|
Capital in excess of par
value
|
3,819,480 | 3,819,480 | ||||||
|
Accumulated other comprehensive
loss
|
(386,208 | ) | (120,018 | ) | ||||
|
Retained earnings
|
11,131,789 | 10,689,400 | ||||||
|
Treasury stock, at cost; 62,200
shares
|
(359,630 | ) | (359,630 | ) | ||||
|
Total
stockholders’ equity
|
14,706,295 | 14,530,096 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 17,283,623 | $ | 17,034,468 | ||||
See Notes
to Consolidated Financial Statements
F-5
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS'
EQUITY
Years
ended December 31, 2008 and 2007
|
Common Stock
Shares Amount
|
Capital
in
excess
of
par value
|
Accumulated
Other
Comprehensive
income
(loss)
|
Retained
earnings
|
Treasury
stock
|
Total
|
Comprehensive
income
|
||||||||||||||||||||||||||
|
|
*
|
|||||||||||||||||||||||||||||||
|
Balance,
December 31, 2006
|
5,004,339 | $ | 500,434 | $ | 3,792,478 | $ | (566,130 | ) | $ | 9,858,538 | $ | (359,630 | ) | $ | 13,225,690 | |||||||||||||||||
|
Issuance
of common stock in
connection
with exercise of
stock
options
|
4,300 | 430 | 13,727 | 14,157 | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Tax
benefit from exercise of
stock
options
|
13,275 | 13,275 | ||||||||||||||||||||||||||||||
|
Effect
of changing pension plan measurement date pursuant to SFAS
158, net of $4,071 tax
|
7,041 | 7,041 | ||||||||||||||||||||||||||||||
|
Adjustment
to apply SFAS 158, net of deferred income tax of
$219,131
|
363,922 | 363,922 | $ | 363,922 | ||||||||||||||||||||||||||||
|
Change
in unrealized loss on
marketable
securities, net of
deferred
income tax of
$47,774
|
82,190 | 82,190 | 82,190 | |||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net
income
|
3,544,308 | 3,544,308 | 3,544,308 | |||||||||||||||||||||||||||||
|
Dividends
declared
|
(2,720,487 | ) | (2,720,487 | ) | ||||||||||||||||||||||||||||
|
Comprehensive
income
|
$ | 3,990,420 | ||||||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
5,008,639 | $ | 500,864 | $ | 3,819,480 | $ | (120,018 | ) | $ | 10,689,400 | $ | (359,630 | ) | $ | 14,530,096 | |||||||||||||||||
|
Adjustment
to apply SFAS 158, net of deferred income tax benefit of
$20,725
|
(43,142 | ) | (43,142 | ) | $ | (43,142 | ) | |||||||||||||||||||||||||
|
Change
in unrealized loss on
marketable
securities, net of
deferred
income tax benefit
of $118,317
|
(223,048 | ) | (223,048 | ) | (223,048 | ) | ||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net
income
|
3,162,931 | 3,162,931 | 3,162,931 | |||||||||||||||||||||||||||||
|
Dividends
declared
|
(2,720,542 | ) | (2,720,542 | ) | ||||||||||||||||||||||||||||
|
Comprehensive
income
|
$ | 2,896,741 | ||||||||||||||||||||||||||||||
|
Balance,
December 31, 2008
|
5,008,639 | $ | 500,864 | $ | 3,819,480 | $ | (386,208 | ) | $ | 11,131,789 | $ | (359,630 | ) | $ | 14,706,295 | |||||||||||||||||
* Restated to reflect other comprehensive
income in 2007 from application of SFAS 158 to $363,922, instead of $8,627
previously reported.
See Notes
to Consolidated Financial Statements
F-6
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Year ended December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net income
|
$ | 3,162,931 | $ | 3,544,308 | ||||
|
Adjustments to reconcile net income to net
cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Depreciation and
amortization
|
200,804 | 197,802 | ||||||
|
Net (gain) loss
on sale of equipment
|
7,763 | (5,000 | ) | |||||
|
Gain
on sale of Eastern Chemical
|
--- | (84,361 | ) | |||||
|
Provision for bad
debts
|
10,684 | (5,000 | ) | |||||
|
Deferred income
taxes
|
(105,032 | ) | 146,317 | |||||
|
Increase (decrease)
in cash resulting from changes in operating
|
||||||||
|
assets
and liabilities:
|
||||||||
|
Accounts receivable
|
(113,310 | ) | 70,327 | |||||
|
Inventories
|
(156,357 | ) | 601,055 | |||||
|
Prepaid expenses and other current and non current
assets
|
161,452 | (425,408 | ) | |||||
|
Accounts
payable
|
64,520 | (66,966 | ) | |||||
|
Accrued pension
costs
|
(9,288 | ) | (123,109 | ) | ||||
|
Accrued expenses and taxes payable
|
170,985 | 202,825 | ||||||
|
Net
cash provided by discontinued operations
|
17,233 | 108,273 | ||||||
|
Net
cash provided by operating activities
|
3,412,385 | 4,161,063 | ||||||
|
Cash
flows from investing activities
|
||||||||
|
Acquisition of plant and equipment
|
(177,465 | ) | (302,406 | ) | ||||
|
Proceeds from the sale of plant and
equipment
|
7,988 | 5,000 | ||||||
|
Net change in temporary investments
|
(529,099 | ) | (28,004 | ) | ||||
|
Purchase of marketable securities
|
(2,965,129 | ) | (588,802 | ) | ||||
|
Proceeds from sale of marketable
securities
|
1,850,000 | 600,000 | ||||||
|
Proceeds
from sale of Eastern Chemical, net of tax
|
--- | 84,361 | ||||||
|
Net cash
used in investing activities
|
(1,813,705 | ) | (229,851 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Payment of long term debt
|
(7,988 | ) | (7,988 | ) | ||||
|
Tax
benefit from exercise of options
|
--- | 13,275 | ||||||
|
Proceeds from exercise of stock options
|
--- | 14,157 | ||||||
|
Dividends paid
|
(2,720,542 | ) | (2,422,755 | ) | ||||
|
Net cash
used in financing activities
|
(2,728,530 | ) | (2,403,311 | ) | ||||
|
Net
(decrease) increase in cash and cash equivalents
|
(1,129,850 | ) | 1,527,901 | |||||
|
Cash
and cash equivalents, beginning of year
|
4,555,388 | 3,027,487 | ||||||
|
Cash
and cash equivalents, end of year
|
$ | 3,425,538 | $ | 4,555,388 | ||||
See Notes
to Consolidated Financial Statements
F-7
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of
Business
United-Guardian, Inc. (the "Company")
is a Delaware corporation that, through its Guardian Laboratories Division,
conducts research, product development, manufacturing and marketing of cosmetic
ingredients and other personal care products, pharmaceuticals, medical and
health care products, and proprietary specialty industrial
products. Two major product lines, LUBRAJEL® and RENACIDIN®, together
accounted for approximately 95% and 94% of revenue for the years ended December
31, 2008 and December 2007, respectively. LUBRAJEL accounted for 77% and 76% of
revenue for the years ended December 31, 2008 and December 31, 2007,
respectively, and RENACIDIN accounted for 18% of revenue in each of the years
ended December 31, 2008 and December 31, 2007.
Until
December 11, 2007, the Company also operated Eastern Chemical Corporation
(“Eastern”), a wholly owned subsidiary of the Company, which distributed a line
of fine organic chemicals, research chemicals, test solutions, indicators,
intermediates, dyes and reagents. It also owned Paragon Organic
Chemicals, Inc. (“Paragon”), a wholly owned subsidiary with no assets that
served as a purchasing entity for Eastern. On December 11, 2007
substantially all of the assets of both of these entities were sold to Pfaltz
& Bauer, Inc., a Connecticut company that operates a business very similar
to that of Eastern. Accordingly, the financial statements reflect
Eastern’s financial results as discontinued operations.
Revenue
Recognition
The
Company recognizes revenue when products are shipped, title and risk of loss
pass to customers, persuasive evidence of a sales arrangement exists, and
collections are reasonably assured. All products are shipped Free On
Board (“FOB”) Hauppauge, New York, the location of the Company’s
plant. Both title and risk of loss are deemed by both the Company and
its customers to have passed to the customers at the time the goods leave the
Company’s plant. Shipments are only made after confirmation
that a valid purchase order has been received and that the future collection of
the sale amount is reasonably assured. All sales of the Company’s
products are deemed final, and there is no obligation on the part of the Company
to repurchase or allow the return of the goods unless they are
defective. The Company does not make sales on consignment, and the
collection of the proceeds of the sale is not contingent upon the customer being
able to sell the goods to a third party.
Any
allowance for returns is taken as a reduction of sales within the same period
the revenue is recognized. Such allowances are based on historical experience.
The Company has not experienced significant fluctuations between estimated
allowances and actual activity.
Cash and
Cash Equivalents
For
financial statement purposes, the Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less at
inception. The Company deposits cash and cash equivalents with high
credit quality financial institutions and believes that any amounts in excess of
insurance limitations to be at minimal risk. Cash and cash
equivalents held in these accounts are currently insured by the Federal Deposit
Insurance Corporation up to a maximum of $250,000. This limit is tentatively set
to revert back to $100,000 after December 31, 2009.
F-8
Dividends
On May
14, 2008, the Company declared a cash dividend of $0.27 per share (aggregating
$1,335,539) payable on June 16, 2008 to stockholders of record as of June 2,
2008. On December 3, 2008 the Company declared a cash dividend of
$0.28 per share (aggregating $1,385,003) payable on January 6, 2009 to
stockholders of record as of December 15, 2008.
On May
16, 2007, the company declared a special dividend of $0.27 per share
(aggregating $1,335,485) payable on June 15, 2007 to stockholders of record as
of June 1, 2007. On December 6, 2007, the company declared a cash
dividend of $0.28 per share aggregating $1,385,003 payable on January 7, 2008 to
stockholders of record as of December 17, 2007.
Supplemental
Disclosures of Non-cash Investing and Financing Activities
Cash
payments for income taxes were $1,425,382 and $1,836,483 for the years ended
December 31, 2008 and 2007, respectively.
For the
years ended December 31, 2008 and 2007, the Company had the following non-cash
investing and financing activities:
|
2008
|
2007
|
|||||||
|
Dividends
declared but not yet paid
|
$ | 1,385,003 | $ | 1,385,003 | ||||
Marketable
Securities and Certificates of Deposit
Marketable
securities include investments in equity mutual funds, government securities and
corporate bonds which are classified as "Available for Sale" securities and are
reported at their fair values under Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. Unrealized gains and losses on "Available
for Sale" securities are reported as accumulated other comprehensive income
(loss) in stockholders' equity, net of the related tax effects. Investment
income is recognized when earned. Realized gains and losses on sales of
investments are determined on a specific identification basis. Fair values are
based on quoted market prices.
Certificates
of deposit that mature in one year or less are classified as current, and those
that mature in more than one year are classified as
non-current. These certificates are carried at cost, which
approximates fair value.
Inventories
Inventories
are valued at the lower of cost or current market value. Cost is determined
using the average cost method, which approximates cost determined by the
first-in, first-out (“FIFO”) method. 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 income 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
F-9
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
system
|
7
years
|
Impairment
of Long-Lived Assets
The
Company accounts for long-lived assets in accordance with the provisions of SFAS
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Other
Asset
Other
asset consists of a $188,360 payment given to a vendor for regulatory and
validation work that was needed to qualify one of the vendor's manufacturing
locations for the production of the Company's RENACIDIN IRRIGATION
product. This amount is being amortized over its estimated 5-year
benefit period at the rate of $37,672 per year, starting in 2008.
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 cash and cash
equivalents, certificates of deposit, accounts receivable, accounts payable,
dividends payable and accrued expenses approximates their carrying value due to
their short payment terms. Marketable securities are carried at fair
value.
Concentration
of Credit Risk
Accounts receivable potentially expose the Company to concentrations
of credit risk. The Company monitors the amount of credit it allows each of its
customers, using the customer’s prior payment history to determine how much
credit to allow or whether any credit should be given at all. It is
the Company’s policy to discontinue shipments to any customer that is
substantially past due on its payments. The Company sometimes requires payment
in advance from customers whose payment record is questionable. As
a result of its monitoring of the outstanding credit allowed for each
customer, as well as the fact that the majority of the Company’s sales are to
customers whose satisfactory credit and payment record has been established over
a long period of time, the Company believes that its accounts receivable credit
risk has been reduced. However, the Company acknowledges that
as of the date of these financial statements the recession in the United States,
as well as the poor economic climate globally, has increased the chances of
customers defaulting on their obligations, and the Company has tightened its
credit policies accordingly.
For the year ended December 31, 2008, two
customers, both of them distributors and marketing partners of the Company,
accounted for a total of approximately 54% of the Company’s revenues, and one
F-10
of those
customers accounted for approximately 52% of the Company’s outstanding accounts
receivable at year end. For the year ended December 31, 2007, those same two
customers accounted for a total of approximately 52% of the Company’s revenues
and 53% of the Company’s outstanding accounts receivable at year
end. The marketing agreement with one such customer, whose purchases
amounted to 45% of total revenue in 2008, expired in December
2008. The Company is in the process of negotiating an extension of
that agreement and expects to have one in place by the end of the second quarter
of 2009.
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.
In June 2006, the FASB issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes -
An Interpretation of FASB Statement No. 109, Accounting for Income Taxes
("FIN 48").The Company adopted the provisions of FIN 48 on January 1, 2007. The
implementation of FIN 48 did not result in any adjustment to the Company's
beginning tax positions. The Company continues to fully recognize its tax
benefits, which are offset by a valuation allowance to the extent that it is
more likely than not that the deferred tax assets will not be realized. As of
December 31, 2007 and December 31, 2008, the Company did not have any
unrecognized tax benefits.
In the
past, the Company has filed consolidated Federal income tax returns in the U.S.,
and separate income tax returns in New York State. The Internal Revenue Service
("IRS") has examined the Company's U.S. income tax returns through 2004. The
Company is subject to examination by the IRS for years 2005, 2006, 2007 and
2008, and by New York State for years 2005 through 2008.
The Company's policy is to recognize
interest and penalties as interest expense.
Research
and Development
The
Company's research and development expenses, included in operating expenses, are
recorded in the year incurred. Research and development expenses were
approximately $423,000 and $420,000 for the years ended December 31, 2008 and
2007, respectively.
Shipping
and Handling Costs
Shipping
and handling costs are classified in operating expenses in the accompanying
consolidated statements of income. Shipping and handling costs were
approximately $102,000 and $86,000 for the years ended December 31, 2008 and
2007 respectively.
Advertising
Costs
Advertising
costs are expensed as incurred. During 2008 and 2007 the Company incurred
$26,200 and $26,100 of advertising costs, respectively.
Stock-Based
Compensation
In 2004,
the Company approved a new stock option plan ("2004 Stock Option
Plan"). Under SFAS No. 123R, Share Based Payment (“SFAS
123R”), all share-based payments to employees, including grants of employee
stock options, are recognized as compensation expense over the requisite service
period
F-11
(generally
the vesting period) in the financial statements based on their fair values on
grant date. For options with graded vesting, the Company fair values the stock
option grants and recognizes compensation expense as if each vesting portion of
the award was a separate award. The impact of forfeitures that may occur prior
to vesting is also estimated and considered in the amount of expense recognized.
In addition, the realization of tax benefits in excess of amounts recognized for
financial reporting purposes will be recognized as a financing activity rather
than as an operating activity.
No stock options were granted in 2008
or 2007.
Earnings
Per Share Information
Basic
earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding during the year. Diluted earnings per share
include the dilutive effect of outstanding stock options.
Use of
Estimates
In
preparing financial statements in conformity with U.S. 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. Such estimated items include the allowance for bad debts,
possible impairment of marketable securities, reserve for inventory
obsolescence, pension liability and the allocation of overhead.
Segment
Reporting
SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, requires that the Company disclose
certain information, including geographic 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. The Company operates in one business
segment.
New
Accounting Pronouncements
In December 2007, the FASB issued SFAS
No. 141(R), Business
Combinations (“SFAS 141(R)”). This Statement replaces SFAS No. 141, Business Combinations. This
Statement retains the fundamental requirements in Statement 141 that the
acquisition method of accounting (which Statement 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. This Statement also establishes principles and requirements for how
the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase; and c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS
141(R) will apply prospectively to business combinations for which the
acquisition date is on or after Company’s fiscal year beginning January 1, 2009.
The impact of the adoption of SFAS 141(R) on the Company’s financial statements
will largely be dependent on the size and nature of any business combinations
completed after adoption of this statement.
In September 2006, the FASB issued
SFAS No. 157, Fair
Value Measurements (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value and requires additional
disclosures about fair value measurements. SFAS 157 is effective for fiscal
years beginning after November 15, 2007 with early adoption permitted; in
November, 2007, the FASB agreed to defer the effective date of SFAS 157 for
one year for all nonfinancial assets and nonfinancial liabilities, except for
those items that are recognized
F-12
or
disclosed at fair value in the financial statements on a recurring basis.
Generally, the provisions of this statement should be applied prospectively as
of the beginning of the fiscal year in which this statement is initially
applied. The Company adopted this statement effective January 1, 2008 (see Note
B)
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option of Financial
Assets and Financial Liabilities (“SFAS 159”). SFAS 159 provides an
option to report selected financial assets and financial liabilities using fair
value. The standard establishes required presentation and disclosures to
facilitate comparisons with companies that use different measurements for
similar assets and liabilities. SFAS 159 is effective for fiscal years beginning
after November 15, 2007, with early adoption allowed if SFAS 157 is also
adopted. The Company concluded that the adoption of SFAS 159 will have no effect
on its consolidated financial statements.
In December 2007, the FASB issued SFAS
No. 160, Non-controlling
Interests in Consolidated Financial Statements (“SFAS 160”). This
Statement amends ARB 51 to establish accounting and reporting standards for the
non-controlling (minority) interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160 is effective for the
Company’s fiscal year beginning January 1, 2009. The Company believes
that the adoption of SFAS 160 will have no current impact on its financial
statements.
In March 2008, the FASB issued SFAS No.
161, Disclosures about Derivative Instruments and Hedging Activities – An
Amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company does not anticipate that the statement
will have a material impact, since the Company has not historically
engaged in hedging activities or acquired derivative instruments.
In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in
preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP. SFAS No. 162 will become
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” This
statement is not expected to change the Company’s current accounting
practice.
NOTE
B - MARKETABLE SECURITIES
Effective January 1, 2008, the Company
adopted SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), for assets and
liabilities measured at fair value on a recurring basis. SFAS 157 accomplishes
the following key objectives:
|
•
|
Defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date;
|
|
•
|
Establishes
a three-level hierarchy ("Valuation Hierarchy") for fair value
measurements;
|
|
•
|
Requires
consideration of the Company's creditworthiness when valuing liabilities;
and
|
|
•
|
Expands
disclosures about instruments measured at fair
value.
|
F-13
The Valuation Hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date. A financial
instrument's categorization within the Valuation Hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The
three levels of the Valuation Hierarchy and the distribution of the Company's
financial assets within it are as follows:
|
•
|
Level
1 - inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
|
•
|
Level
2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial
instrument.
|
|
•
|
Level
3 – inputs to the valuation methodology are unobservable and significant
to the fair value
measurement.
|
The
following available-for-sale securities are re-measured to fair value on a
recurring basis and are valued using level 1 inputs using quoted prices
(unadjusted) for identical assets in active markets as defined by SFAS
157:
|
December 31, 2008
|
Cost
|
Fair Value
|
Unrealized
Gain/(Loss)
|
|||||||||
|
Available
for sale:
|
||||||||||||
|
U.S.
Treasury and agencies
|
||||||||||||
|
Maturities
within 1 year
|
$ | 1,140,227 | $ | 1,153,798 | $ | 13,571 | ||||||
|
Maturities
after 1 year through 5 years
|
2,458,685 | 2,536,931 | 78,246 | |||||||||
|
Total U.S.
Treasury and agencies
|
$ | 3,598,912 | $ | 3,690,729 | $ | 91,817 | ||||||
|
Fixed
income mutual funds
|
4,715,827 | 4,380,669 | (335,158 | ) | ||||||||
|
Equity
and other mutual funds
|
240,494 | 167,785 | (72,709 | ) | ||||||||
| $ | 8,555,233 | $ | 8,239,183 | $ | (316,050 | ) | ||||||
|
December 31, 2007
|
||||||||||||
|
Available
for sale:
|
||||||||||||
|
U.S.
Treasury and agencies
|
||||||||||||
|
Maturities
within 1 year
|
$ | 949,354 | $ | 960,329 | $ | 10,975 | ||||||
|
Maturities
after 1 year through 5 years
|
1,803,298 | 1,835,253 | 31,955 | |||||||||
|
Total U.S.
Treasury and agencies
|
$ | 2,752,652 | $ | 2,795,582 | $ | 42,930 | ||||||
|
Fixed
income mutual funds
|
4,452,050 | 4,404,078 | (47,972 | ) | ||||||||
|
Equity
and other mutual funds
|
235,399 | 265,757 | 30,358 | |||||||||
| $ | 7,440,101 | $ | 7,465,417 | $ | 25,316 | |||||||
Proceeds
from the sale and redemption of U.S. Treasury and agency bonds amounted to
$1,850,000 and $600,000 for the years ended December 31, 2008 and 2007,
respectively. Realized gains in each year were
insignificant.
Investment
income consisted principally of interest income from certificates of deposit,
bonds and money market funds and dividend income from bond funds and mutual
funds.
F-14
NOTE
C - INVENTORIES
Inventories consist of the
following:
|
December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Raw
materials and work-in-process
|
$ | 422,437 | $ | 359,730 | ||||
|
Finished
products
|
922,142 | 828,492 | ||||||
| $ | 1,344,579 | $ | 1,188,222 | |||||
Inventories
at December 31, 2008 and 2007 are stated net of a reserve of $39,000 for slow
moving and obsolete items.
NOTE D
- NOTES PAYABLE - BANKS
On
January 17, 2007 the Company entered into a line of credit agreement with
JPMorgan Chase Bank for borrowings of up to $2,000,000 at an interest rate of
1.0% below the Prime Rate. The line of credit was renewed, effective
as of June 30, 2007 and expired on June 30, 2008.
The
company did not renew this line of credit on June 30, 2008. There are
no outstanding notes at December 31, 2008
NOTE E
– INCOME TAXES
The provision for income taxes from
continuing operations consists of the following:
|
Year ended December
31,
|
||||||||
|
Current
|
2008
|
2007
|
||||||
|
Federal
|
$ | 1,584,183 | $ | 1,473,999 | ||||
|
State
|
24,670 | (24,914 | ) | |||||
| 1,608,853 | 1,449,085 | |||||||
|
Deferred
|
||||||||
|
Federal
|
(102,002 | ) | 118,506 | |||||
|
State
|
(3,030 | ) | 27,811 | |||||
| (105,032 | ) | 146,317 | ||||||
|
Total provision for
income taxes
|
$ | 1,503,821 | $ | 1,595,402 | ||||
The following is a reconciliation of
the Company's effective income tax rate to the Federal statutory rate (dollar
amounts have been rounded to the nearest thousand):
|
Year ended December
31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
($)
|
%
|
($)
|
%
|
|||||||||||||
|
Income
taxes at statutory Federal income tax
rate
|
$ | 1,587,000 | 34 | $ | 1,708,000 | 34 | ||||||||||
|
State
income taxes, net of Federal benefit
|
14,000 | --- | 2,000 | --- | ||||||||||||
|
Domestic
Production Activities deduction
|
(82,000 | ) | (2 | ) | (78,000 | ) | (2 | ) | ||||||||
|
Nondeductible
expenses
|
--- | --- | 2,000 | --- | ||||||||||||
|
Change
in deferred tax asset valuation
allowance
|
--- | --- | (43,000 | ) | (1 | ) | ||||||||||
|
Other,
net
|
(15,000 | ) | --- | 4,000 | 1 | |||||||||||
|
Actual
income tax expense
|
$ | 1,504,000 | 32 | $ | 1,595,000 | 32 | ||||||||||
F-15
During
2008 and 2007, the Company realized the tax benefits of the Domestic Production
Activities deduction, which amounted to approximately 6% of net taxable income
from domestic production activities.
The tax
effects of temporary differences which comprise the deferred tax assets and
liabilities are as follows:
|
Year ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Deferred
tax assets
|
||||||||
|
Current
|
||||||||
|
Accounts
receivable
|
$ | 10,398 | $ | 10,398 | ||||
|
Accrued pension
liability
|
95,323 | 74,598 | ||||||
|
Inventories
|
21,457 | 20,375 | ||||||
|
Accrued
expenses
|
228,620 | 117,599 | ||||||
| 355,798 | 222,970 | |||||||
|
Deferred
tax liabilities
|
||||||||
|
Non-current
|
||||||||
|
Pension
asset
|
(138,159 | ) | (131,088 | ) | ||||
|
Unrealized (gain) loss on
marketable
securities
|
109,543 | (8,774 | ) | |||||
| (28,616 | ) | (139,862 | ) | |||||
|
Net deferred tax
asset
|
$ | 327,182 | $ | 83,108 | ||||
A
reduction of $42,798 in the valuation allowance for the year ended December 31,
2007 was due to the company realizing the benefit of capital loss carryforwards
from 2006, which substantially offset the capital gain on disposition of the
Eastern division.
NOTE F
- BENEFIT PLANS
Pension
Plan
The
Company has a noncontributory defined benefit pension plan (the “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. Investment strategies are determined by the
Board of Directors.
As of
December 31, 2007 the Company put in place a freeze on future benefit accruals
to the Plan while the Company investigated the advisability of replacing the
Plan with a defined contribution plan, which would be coordinated with, and be
part of, the Company’s existing 401(k) plan. On February 19, 2008,
the Company decided to terminate the Plan, subject to regulatory approval, and
has begun taking the steps necessary to do so. In November 2008 the
Company submitted the necessary applications to the Pension Benefit Guaranty
Corporation (“PBGC”), and the time for them to respond with any objections has
now expired. The only remaining requirement in order to terminate the
plan is to receive IRS approval, which the Company expects to receive by the
first quarter of 2010, but could come sooner, depending on the IRS
workload.
Upon termination of the pension plan,
non-vested benefits will become fully vested, and the effects of future
contribution levels will cease to be an obligation. Any resulting
gain is first offset against an existing net loss included in accumulated other
comprehensive income.
Under FASB Statement No. 88, Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits (“SFAS 88”), if the net effect of a termination
is a gain,
F-16
the gain
is to be recognized when the termination occurs, which would be the date the
employees are terminated or the date the pension plan is
terminated.
The Plan assets at fair value as of
December 31, 2008 and 2007 are as follows:
|
2008
|
2007
|
|||||||
|
Equity
securities:
|
||||||||
|
Principal
Financial Group Stock Separate Account
|
$ | 52,212 | $ | 138,209 | ||||
|
Principal
Large Cap Stock Index Separate Account
|
173,785 | 286,084 | ||||||
|
Principal
Medium Company Blend Separate Account
|
135,743 | 210,922 | ||||||
|
TOTAL
EQUITY SECURITIES
|
$ | 361,740 | $ | 635,215 | ||||
|
Debt securities:
|
||||||||
|
General
Investment Account*
|
$ | 1,668,662 | $ | 1,826,539 | ||||
|
Contributions
from employer received between October 1, 2007
measurement
date and December 31, 2007:
|
--- | 300,000 | ||||||
|
TOTAL
ASSETS
|
$ | 2,030,402 | $ | 2,761,754 | ||||
* The
General Investment Account represents an interest in a portfolio of intermediate
term fixed-income investments maintained by the Principal Financial
Group.
Historical
and expected future returns of multiple asset classes were analyzed to develop a
risk-free real rate of return and risk premiums for each asset class. The
overall rate for each asset class was developed by combining a long-term
inflation component, the risk free real rate of return, and the associated risk
premium. A weighted-average rate was developed based on those overall rates and
target asset allocation of the Plan.
Based on
current data and assumptions, the following benefit payments, which reflect
expected future employee service, as appropriate, are expected to be paid over
the next ten years as follows:
|
Year
Ending
|
Expected
Future
Benefits Payable
|
|||
|
2009
|
$ | 170,000 | ||
|
2010
|
41,000 | |||
|
2011
|
75,000 | |||
|
2012
|
48,000 | |||
|
2013
|
210,000 | |||
|
2014-2018
|
800,000 | |||
The
Company does not plan to make contributions to the Plan in 2009.
A
measurement period from October 1, 2006 to October 1, 2007 has been used for the
year ended December 31, 2007. The liabilities and assets are calculated at
October 1, 2007. Assets are adjusted for known contributions received by the
Company between October 1, 2007 and December 31, 2007.
SFAS No.
158 required a benefit cost of $11,112 for the period from October 1, 2007 to
December 31, 2007 be accounted for by adjustments to balance sheet accounts,
rather than through profit and loss accounts for the preceding or following
year. This amount was recorded as of December 31, 2007 as a pension
asset and an increase in retained earnings of $7,041 (net of deferred income
taxes of $4,071).
As required by SFAS No. 158, the
measurement date for the plan’s assets and liabilities has been changed to
conform with the Company’s fiscal year end.
The
following table sets forth the Plan's funded status:
F-17
|
Year ended December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Change
in Benefit Obligation:
|
||||||||
|
Projected benefit obligation at beginning of year
|
$ | 2,598,770 | $ | 2,914,689 | ||||
|
Service
cost
|
--- | 126,132 | ||||||
|
Interest
cost
|
176,429 | 144,358 | ||||||
|
Actuarial
(gain)/loss
|
(43,498 | ) | 64,527 | |||||
|
Benefits
paid
|
(44,654 | ) | (83,793 | ) | ||||
|
Effect of
settlement/curtailment
|
(780,234 | ) | (567,143 | ) | ||||
|
Projected benefit obligation at end of
year
|
$ | 1,906,813 | $ | 2,598,770 | ||||
|
Change
in Plan Assets:
|
||||||||
|
Fair value of Plan assets at
beginning of year
|
$ | 2,761,754 | $ | 2,208,527 | ||||
|
Actual return on Plan
assets
|
16,264 | 137,020 | ||||||
|
Employer
contributions
|
77,272 | 500,000 | ||||||
|
Benefits
paid
|
(44,654 | ) | (83,793 | ) | ||||
|
Effect of
settlement
|
(780,234 | ) | --- | |||||
|
Fair
value of Plan assets at end of year
|
$ | 2,030,402 | $ | 2,761,754 | ||||
|
Funded
status at end of year - overfunded
|
$ | 123,589 | 162,984 | |||||
|
Amounts
recognized in statement of financial position :
|
||||||||
|
Noncurrent assets
|
123,589 | $ | 162,984 | |||||
|
Total
|
$ | 123,589 | $ | 162,984 | ||||
|
Amounts
recognized in accumulated Other Comprehensive
Income
("OCI")
|
||||||||
|
Total net
loss
|
$ | 275,024 | $ | 215,228 | ||||
|
Total
accumulated OCI (not adjusted for applicable tax)
|
$ | 275,024 | $ | 215,228 | ||||
|
Weighted-average
assumptions used to determine benefit
obligations
|
||||||||
|
Discount
rate
|
6.25 | % | 5.75 | % | ||||
|
Rate of compensation
increase
|
5.36 | % | 5.42 | % | ||||
The net
periodic benefit cost includes the following components:
|
Year ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Components
of net periodic benefit cost:
|
||||||||
|
Service
cost
|
$ | --- | $ | 126,132 | ||||
|
Interest
cost
|
176,429 | 144,358 | ||||||
|
Expected return on Plan
assets
|
(232,109 | ) | (137,632 | ) | ||||
|
Amortization of net actuarial
loss
|
--- | 49,051 | ||||||
|
Amortization of prior service
cost
|
--- | 7,461 | ||||||
|
Effect of special
events
|
112,552 | 24,537 | ||||||
|
Net periodic benefit cost
|
$ | 56,872 | $ | 213,907 | ||||
|
Other
changes recognized in OCI
|
||||||||
|
Net loss
|
$ | 172,348 | 65,139 | |||||
|
Amortization of net gain
(loss)
|
--- | (49,051 | ) | |||||
|
Amortization of prior service
cost
|
--- | (7,461 | ) | |||||
|
Amount
recognized due to special event
|
(112,552 | ) | (567,143 | ) | ||||
|
Prior
service cost recognized due to curtailment
|
--- | (24,537 | ) | |||||
|
Total
recognized in other comprehensive
income
|
$ | 59,796 | $ | (583,053 | ) | |||
|
Total
recognized in net periodic benefit cost
|
||||||||
|
and OCI
|
$ | 116,668 | $ | (369,146 | ) | |||
|
Weighted-average
assumptions used to determine net
period benefit cost
|
||||||||
|
Discount
rate
|
5.75 | % | 5.50 | % | ||||
|
Expected long-term return on Plan
assets
|
7.00 | % | 7.00 | % | ||||
|
Rate of compensation
increase
|
5.42 | % | 5.50 | % | ||||
F-18
401(k)
Plan
The Company maintains a 401(k) plan for
all of its eligible employees. Under the plan, employees may defer up to 15% of
their weekly pay as a pre-tax investment in a savings plan. In addition, the
Company made contributions of 50% of the first 6% of each employee's elective
deferral up to a maximum employer contribution of 3% of biweekly pay in
2007.
Because the Company froze all benefits
in its defined benefit pension plan as of December 31, 2007, and has initiated
termination of that Plan, the Company modified its 401(k) plan, effective
January 1, 2008, by increasing the employer contribution to a maximum of 100% of
the first 4% of each employee's pay, and will, beginning in 2009, make an
additional discretionary contribution to each employee's account based on a
“pay-to-pay” safe-harbor formula that qualifies the 401(k) plan under current
IRS regulations.
Employees
become fully vested in Company contributions after one year of employment.
401(k) Company contributions were approximately $91,000 and $65,000 for the
years ended December 31, 2008 and 2007, respectively.
In
addition, in December 2008 the Company’s Board of Directors authorized a
discretionary contribution to the modified 401(k) plan in the amount of
$175,000, to be allocated among all eligible employees for the 2008
year. The contribution, which had been accrued during 2008, was made
in January, 2009.
Stock
Option Plans
At its
meeting on March 19, 2004 the Board of Directors of the Company approved the
adoption of the 2004 Stock Option Plan. The plan
authorizes the granting of options for up to 500,000 shares,
and covers both employees and directors. The adoption and
implementation of the new plan was ratified by the shareholders of the Company
at the Company's annual meeting of shareholders on May 19, 2004. No
options have been granted under this plan.
There
were also no stock option transactions from the expired Non-Statutory Stock
Option Plan for Directors. The following summarizes the stock option
transactions from the previous Employee Incentive Stock Option Plan that is now
expired and was replaced by the 2004 Stock Option Plan:
|
Number
Outstanding
|
Weighted
average
exercise
price per share
|
|||||||
|
Options
outstanding and exercisable at January 1, 2007
|
4,300 | $ | 3.29 | |||||
|
Exercised
|
(4,300 | ) | $ | 3.29 | ||||
|
Options
outstanding and exercisable at December 31,
2007
|
0 | --- | ||||||
As of December 31, 2008 and 2007, there were no stock options
outstanding.
The intrinsic value of the 4,300
options exercised during 2007 was $40,304.
F-19
As of
December 31, 2008 and 2007, there was no remaining unrecognized
compensation cost related to the non-vested share-based compensation
arrangements granted under the Company's plans.
The
Company did not record any compensation expense during the years ended December
31, 2008 and 2007 under the provisions of SFAS 123R.
Cash
received from options exercised under all share-based payment arrangements for
the year ended December 31, 2007 was $14,157.
NOTE
G – DISCONTINUED OPERATIONS
On December 11, 2007 the Company
completed the sale of substantially all of the assets of its Eastern
subsidiary. The assets of Eastern were sold for $266,759, which
resulted in a gain of $84,361 (net of taxes of $45,396). The
Eastern corporate entity was dissolved in December 2008. Paragon Organic
Chemicals, a purchasing entity for Eastern with no assets of its own, was also
dissolved in December 2008, but the right to use the Paragon name was sold to
the purchaser of the Eastern assets. As a result of the sale, Eastern is
classified as discontinued operations for all periods presented.
The table below sets forth the results
of operations of Eastern. The results below do not include any allocated or
common overhead expenses. In accordance with SFAS 144, the gain on
the sale of Eastern and its operating income are reflected in the accompanying
financial statements as discontinued operations. The Company recorded
a liability for severance payments due to employees of Eastern of $47,386 at
December 31, 2007. There was no income or loss from discontinued
operations in 2008.
The results of operations of Eastern
for the year ended December 31, 2007, and its financial position as of December
31, 2007, were as follows:
|
Results of Operations:
|
2007
|
|||
|
Revenue
|
$ | 841,060 | ||
|
Less:
|
||||
|
Cost
of goods sold
|
(479,590 | ) | ||
|
General
and administrative
|
(309,008 | ) | ||
|
Income
before income taxes
|
52,462 | |||
|
Income
tax provision
|
(19,600 | ) | ||
|
Income
from discontinued operations, excluding gain on sale
|
$ | 32,862 | ||
|
Financial position:
|
||||
|
Net
current assets:
|
||||
|
Accounts
receivable
|
$ | 64,619 | ||
|
Accounts
payable
|
(47,386 | ) | ||
|
Net
current assets from
discontinued
operations
|
$ | 17,233 | ||
NOTE H
- EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 2008 and 2007:
F-20
|
Year ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Numerator:
|
||||||||
|
Net income from continuing
operations
|
$ | 3,162,931 | $ | 3,427,085 | ||||
|
Net
income from discontinued operations
|
--- | 117,223 | ||||||
|
Net
Income
|
$ | 3,162,931 | $ | 3,544,308 | ||||
|
Denominator:
|
||||||||
|
Denominator for basic earnings per
share
(weighted
average shares)
|
4,946,439 | 4,944,943 | ||||||
|
Effect of dilutive securities:
|
||||||||
|
Employee stock options
|
--- | 980 | ||||||
|
Denominator for diluted earnings
per
|
||||||||
|
share (adjusted
weighted-average
|
||||||||
|
shares) and assumed
conversions
|
4,946,439 | 4,945,923 | ||||||
|
Basic
and diluted earnings per share
|
||||||||
|
Continuing
operations
|
$ | .64 | $ | .69 | ||||
|
Discontinued
operations
|
$ | --- | $ | .03 | ||||
|
Total
– Basic and diluted
|
$ | .64 | $ | .72 | ||||
In
2008 and 2007 there were no options excluded from the computation of diluted
earnings per share.
NOTE I
- GEOGRAPHIC and OTHER INFORMATION
Through
its Guardian Laboratories division the Company conducts research, product
development, manufacturing and marketing of cosmetic ingredients, personal and
health care products, pharmaceuticals, and specialty industrial
products. The Company’s R&D department not only develops new
products but also modifies and refines existing products, with the goal of
expanding the potential markets for the Company's products. Many of
the cosmetic ingredient products manufactured by Guardian, particularly its
LUBRAJEL® line of water-based moisturizing and lubricating gels, are currently
used by many of the major multinational personal care products
companies.
The
Company’s products are separated into four distinct product categories:
pharmaceuticals, personal care products (including cosmetic ingredients),
medical products, and industrial products. Each product category is
marketed differently. The cosmetic ingredient/personal care products
are marketed through a global network of marketing partners and
distributors. These marketing partners purchase product outright from
the Company and market and re-sell those products to the
end-users. Title and risk of loss passes to those customers when the
goods leave the Company’s facility in Hauppauge, New York, and the Company is
under no obligation to accept the return of any product unless the product is
defective. The Company does not make any sales on
consignment.
No prior
regulatory approval was needed by the Company to sell any products other than
its pharmaceutical products. The end-users of its products may or may
not need regulatory approvals, depending on the intended claims and uses of
those products.
The
pharmaceutical products are two urological products that are sold to end-users
primarily through distribution agreements with the major drug
wholesalers. For these products, the Company does the
marketing, and the drug wholesalers supply the product to the end-users, such as
hospitals and pharmacies. These products are drug products that
required the Company to obtain regulatory approval before
marketing.
F-21
The medical products are
non-pharmaceutical products, such as medical lubricants, that are marketed
solely by the Company directly to end-users, such as companies that incorporate
some of the Company’s lubricating gels into urethral catheters. These
products are distinguished from the pharmaceutical
products in that, unlike the pharmaceutical products, the Company does
not have to obtain
regulatory approval prior to marketing these
products, since that is the responsibility of the end-user, who is generally
incorporating the product into a medical device.
The
industrial products are also marketed directly to the end-users by the Company,
and generally do not require that the Company obtain regulatory
approval. However, the end-users may have to obtain such regulatory
approvals before marketing these products.
|
(a)
|
Gross
Revenues
|
|
Year ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Personal
Care
|
$ | 7,876,801 | $ | 7,776,595 | ||||
|
Pharmaceuticals
|
2,642,935 | 2,497,897 | ||||||
|
Medical
|
1,958,494 | 1,731,993 | ||||||
|
Industrial
|
106,543 | 135,635 | ||||||
| $ | 12,584,773 | $ | 12,142,120 | |||||
|
Less
Discounts and allowances
|
(292,626 | ) | (253,558 | ) | ||||
| $ | 12,292,147 | $ | 11,888,562 | |||||
|
(b)
|
Geographic
Information
|
|
Year ended December 31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Long-Lived
Assets
|
Long-Lived
Assets
|
|||||||||||||||
|
Revenues
|
Revenues
|
|||||||||||||||
|
United
States
|
$ | 5,226,825 | $ | 951,979 | $ | 5,067,189 | $ | 953,397 | ||||||||
|
France
|
1,347,548 | --- | 1,262,568 | --- | ||||||||||||
|
Other
countries
|
5,717,774 | --- | 5,558,805 | --- | ||||||||||||
| $ | 12,292,147 | $ | 951,979 | $ | 11,888,562 | $ | 953,397 | |||||||||
|
(c)
|
Revenue from Major
Customers
|
|
Year
ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Customer A
|
$ | 5,478,157 | $ | 5,169,988 | ||||
|
Customer B
|
1,162,386 | 1,027,334 | ||||||
|
All other
customers
|
5,651,604 | 5,691,240 | ||||||
| $ | 12,292,147 | $ | 11,888,562 | |||||
NOTE
J - CONTINGENCIES
While
the Company has claims that arise from time to time in the ordinary course of
its business, the Company is not currently involved in any material
claims.
F-22
NOTE
K - ACCRUED EXPENSES
Accrued
expenses at December 31, 2008 and 2007 consist of:
|
2008
|
2007
|
|||||||
|
Accrued
401(k) plan contribution
|
$ | 175,000 | $ | --- | ||||
|
Accrued
bonuses
|
170,000 | 144,000 | ||||||
|
Accrued
distribution fees
|
213,541 | 146,455 | ||||||
|
Other
|
410,701 | 503,731 | ||||||
| $ | 969,242 | $ | 794,186 | |||||
NOTE
L - RELATED PARTY TRANSACTIONS
During
the years ended December 31, 2008 and 2007 the Company paid to Henry Globus, a
former officer and current director of the Company, $21,816 and $21,024
respectively, for consulting services in accordance with his employment
termination agreement of 1988.
During
each of the years ended December 31, 2008 and 2007 the Company paid to
Bonamassa, Maietta, and Cartelli, LLP, $10,500 for accounting and tax services.
Lawrence Maietta, a partner in Bonamassa, Maietta, and Cartelli, LLP, is
currently a director of the Company.
During
the year ended December 31, 2008, Kenneth Globus, President of the Company,
purchased a used company-owned vehicle for $7,988.
F-23