UNITED GUARDIAN INC - Quarter Report: 2009 March (Form 10-Q)
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31,
2009
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¨
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TRANSITION
REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
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
|
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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230 Marcus Boulevard,
Hauppauge, New York 11788
(Address
of Principal Executive Offices)
(631)
273-0900
(Registrant’s
Telephone Number)
N/A
(Former name, former address and
former fiscal year, if changed since last report)
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 past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes þ No
£
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes £ No
£
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 definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated
filer £
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Non-accelerated
filer £
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(Do
not check if a smaller reporting company)
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Accelerated
filer
£
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|
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Smaller
reporting company þ
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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
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
4,946,439 shares of common stock, par value
$.10 per share
(as
of May 1, 2009)
UNITED-GUARDIAN,
INC.
INDEX
TO FINANCIAL STATEMENTS
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Page
No.
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Part
I. FINANCIAL INFORMATION
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Item
1 - Condensed Financial
Statements
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2
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3-4
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5
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6-12
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13-17
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17
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Item
4T - Controls and Procedures
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17
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Part
II. OTHER INFORMATION
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Item
1 - Legal
Proceedings
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18
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Item
1A - Risk Factors
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18
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18
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Item
3 - Defaults Upon Senior
Securities
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18
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18
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Item
5 - Other
Information
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18
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Item
6 - Exhibits and Reports On Form
8-K
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18
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19
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1
Part
I. FINANCIAL INFORMATION
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THREE
MONTHS ENDED
MARCH
31,
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||||||||
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2009
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2008
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|||||||
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Net
sales
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$ | 3,895,143 | $ | 3,031,199 | ||||
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Costs and
expenses:
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||||||||
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Cost
of sales
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1,546,319 | 1,237,183 | ||||||
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Operating
expenses
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709,985 | 659,312 | ||||||
| 2,256,304 | 1,896,495 | |||||||
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Income
from operations
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1,638,839 | 1,134,704 | ||||||
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Other income
(expense):
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||||||||
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Investment
income
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91,602 | 128,327 | ||||||
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Loss
on sale of equipment
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--- | (7,763 | ) | |||||
| 91,602 | 120,564 | |||||||
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Income
from operations before
Income
taxes
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1,730,441 | 1,255,268 | ||||||
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Provision
for income taxes
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575,200 | 416,000 | ||||||
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Net
income
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$ | 1,155,241 | $ | 839,268 | ||||
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Earnings
per common share
(Basic
and Diluted)
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$ | 0.23 | $ | 0.17 | ||||
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Weighted
average shares – basic and diluted
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4,946,439 | 4,946,439 | ||||||
See notes to condensed financial
statements
2
UNITED-GUARDIAN,
INC.
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ASSETS
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MARCH
31,
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DECEMBER
31,
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||||||
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2009
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2008
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|||||||
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(UNAUDITED)
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||||||||
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Current
assets:
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||||||||
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Cash
and cash equivalents
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$ | 4,050,907 | $ | 3,425,538 | ||||
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Certificates of
deposit
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813,860 | 812,952 | ||||||
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Marketable
securities
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7,988,592 | 8,239,183 | ||||||
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Accounts
receivable, net of allowance for doubtful accounts of $27,384
at March 31 2009 and $30,000 at December 31, 2008
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1,516,405 | 1,381,012 | ||||||
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Inventories
(net)
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1,180,716 | 1,344,579 | ||||||
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Prepaid
expenses and other current assets
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187,224 | 226,330 | ||||||
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Deferred
income taxes
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355,798 | 355,798 | ||||||
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Total
current assets
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16,093,502 | 15,785,392 | ||||||
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Certificates
of deposit, due 2010
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274,886 | 271,976 | ||||||
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Property, plant and
equipment:
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||||||||
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Land
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69,000 | 69,000 | ||||||
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Factory
equipment and fixtures
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3,292,713 | 3,288,808 | ||||||
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Building
and improvements
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2,431,908 | 2,431,908 | ||||||
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Waste
disposal plant
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133,532 | 133,532 | ||||||
| 5,927,153 | 5,923,248 | |||||||
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Less:
Accumulated depreciation
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5,004,026 | 4,971,269 | ||||||
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Total
property, plant and equipment, net
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923,127 | 951,979 | ||||||
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Other
assets
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||||||||
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Pension
asset
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126,286 | 123,589 | ||||||
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Other
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141,270 | 150,687 | ||||||
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Total
other assets
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267,556 | 274,276 | ||||||
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TOTAL
ASSETS
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$ | 17,559,071 | $ | 17,283,623 | ||||
See notes
to condensed financial statements
3
UNITED-GUARDIAN,
INC.
BALANCE
SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS’
EQUITY
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MARCH
31,
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DECEMBER 31,
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|||||||
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2009
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2008
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|||||||
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Current
liabilities:
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(UNAUDITED)
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|||||||
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Dividends
payable
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$ | --- | $ | 1,385,003 | ||||
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Accounts
payable
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334 581 | 187,810 | ||||||
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Loans
payable
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4,660 | 6,657 | ||||||
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Accrued
taxes payable
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409,084 | --- | ||||||
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Accrued
expenses
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915,522 | 969,242 | ||||||
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Total
current liabilities
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1,663,847 | 2,548,712 | ||||||
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Deferred
income taxes
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30,374 | 28,616 | ||||||
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Stockholders’
equity:
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||||||||
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Common
stock $.10 par value, authorized, 10,000,000 shares; 5,008,639
shares issued, and 4,946,439 shares outstanding at March 31,
2009
and December 31, 2008.
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500,864 | 500,864 | ||||||
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Capital
in excess of par value
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3,819,480 | 3,819,480 | ||||||
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Accumulated
other comprehensive loss
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(382,894 | ) | (386,208 | ) | ||||
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Retained
earnings
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12,287,030 | 11,131,789 | ||||||
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Treasury
stock, at cost; 62,200 shares
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(359,630 | ) | (359,630 | ) | ||||
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Total
stockholders’ equity
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15,864,850 | 14,706,295 | ||||||
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TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY
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$ | 17,559,071 | $ | 17,283,623 | ||||
See notes
to condensed financial statements
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THREE
MONTHS ENDED
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||||||||
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MARCH
31,
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||||||||
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2009
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2008
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|||||||
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Cash flows
from operating activities:
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||||||||
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Net
income
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$ | 1,155,241 | $ | 839,268 | ||||
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Adjustments
to reconcile net income to net
cash
provided by operating
activities:
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||||||||
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Depreciation and
amortization
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42,174 | 56,320 | ||||||
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Loss on sale of
equipment
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--- | 7,763 | ||||||
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Reduction in allowance for bad
debts
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(2,616 | ) | (6,073 | ) | ||||
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Increase (decrease) in cash
resulting from
changes in operating assets and liabilities:
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||||||||
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Accounts
receivable
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(132,777 | ) | (418,354 | ) | ||||
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Inventories
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163,863 | (270,663 | ) | |||||
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Prepaid
expenses and other current assets
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39,106 | (135,611 | ) | |||||
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Accounts
payable
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146,771 | 410,698 | ||||||
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Accrued
expenses and taxes payable
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352,667 | 506,469 | ||||||
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Net
cash provided by continuing operating activities
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1,764,429 | 989,817 | ||||||
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Net
cash provided by discontinued operating activities
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--- | 21,320 | ||||||
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Net cash provided by operating
activities
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1,764,429 | 1,011,137 | ||||||
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Cash flows
from investing activities:
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||||||||
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Acquisition of property, plant
and equipment
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(3,905 | ) | (52,515 | ) | ||||
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Proceeds from sale of
equipment
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--- | 7,988 | ||||||
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Net change in certificates of
deposit
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(3,818 | ) | (7,144 | ) | ||||
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Proceeds from sale of
marketable securities
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300,000 | --- | ||||||
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Purchase of marketable
securities
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(44,337 | ) | (359,357 | ) | ||||
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Net cash provided by (used
in) investing activities
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247,940 | (411,028 | ) | |||||
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||||||||
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Cash flows
from financing activities:
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||||||||
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Payment of long term
debt
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(1,997 | ) | (1,997 | ) | ||||
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Dividends
paid
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(1,385,003 | ) | (1,385,003 | ) | ||||
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Net cash used in financing
activities
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(1,387,000 | ) | (1,387,000 | ) | ||||
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Net increase
(decrease) in cash and cash equivalents
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625,369 | (786,891 | ) | |||||
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Cash and cash equivalents at
beginning of period
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3,425,538 | 4,555,388 | ||||||
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Cash and cash equivalents at end
of period
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$ | 4,050,907 | $ | 3,768,497 | ||||
See notes
to condensed financial statements
5
UNITED-GUARDIAN,
INC.
(UNAUDITED)
|
1.
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Nature
of Business
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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.
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2.
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Basis
of Presentation
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Interim
financial statements of the Company are prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for
interim financial information and pursuant to the requirements for reporting on
Form 10-Q and Regulation SX. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals, considered
necessary for the fair presentation of financial statements for the interim
periods have been included. The results of operations for the current
period are not necessarily indicative of results that ultimately may be achieved
for any other interim period or for the year ending December 31,
2009. The interim unaudited financial statements and notes thereto
should be read in conjunction with the audited financial statements and notes
thereto contained in our Annual Report on Form 10-K for the year ended December
31, 2008.
Substantially
all of the assets of Eastern Chemical Corporation, a wholly-owned subsidiary of
the Company, were sold in December 2007, and the Company therefore no longer
presents consolidated financial statements.
Certain
prior period amounts have been reclassified to conform to the current period
presentation.
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3.
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Stock-Based
Compensation
|
At March
31, 2009, the Company had a stock-based compensation plan for its employees and
Directors, which is more fully described in the Company's Annual Report on Form
10-K for the year ended December 31, 2008.
The
Company follows the Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 123R, which requires that the fair
value of all share-based payments to employees, including grants of employee
stock options, be recognized as an expense in the financial
statements.
As of
March 31, 2009 the Company had no share-based awards outstanding and exercisable
and did not grant any options during the three months ended March 31,
2009.
As of
March 31, 2009 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 under the provisions of SFAS
123R during the three-month periods ended March 31, 2009 and 2008.
6
The
Company did not receive any proceeds from the exercise of options during the
three months ended March 31, 2009 and 2008.
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4.
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Recent
Accounting Pronouncements
|
In
October 2008, the FASB issued FASB Staff Position FAS 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active” (“FSP 157-3”), which clarified the application of FAS 157 and
demonstrated how the fair value of a financial asset is determined when the
market for that financial asset is inactive. FSP 157-3 was effective upon
issuance. The implementation of this standard did not have an impact on the
Company’s financial position.
Effective
January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). This statement
provides companies with an option to report selected financial assets and
liabilities at fair value. As of March 31, 2009, the Company has not
elected to use the fair value option allowed by SFAS 159. The adoption of
SFAS 159 did not have an impact on the Company’s financial position, results of
operations, cash flows or financial statement disclosures.
Effective
January 1, 2009, the Company adopted SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). The
standard changes the accounting for noncontrolling (minority) interests in
consolidated financial statements including the requirements to classify
noncontrolling interests as a component of consolidated stockholders' equity,
and the elimination of "minority interest" accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, SFAS 160 revises the accounting for both
increases and decreases in a parent's controlling ownership interest. The
adoption of SFAS 160 did not have an impact on the Company’s
financial position, results of operations, cash flows, or financial statement
disclosures.
In
December 2007, the FASB issued Statement No. 141 (revised), “Business
Combinations” (“SFAS 141 (R)”). The standard changes the accounting for business
combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition related transaction costs and the recognition of changes in the
acquirer's income tax valuation allowance. SFAS 141(R) is effective for fiscal
years beginning after December 15, 2008, with early adoption
prohibited. Adoption by the Company of SFAS 141(R) as of January 1,
2009 did not have an impact on the Company’s financial statements.
In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities — an amendment of FASB Statement No. 133”,
which requires additional disclosures for derivative instruments and hedging
activities. SFAS 161 is effective for the Company beginning January
1, 2009. The Company does not have any derivative instruments nor has
it engaged in any hedging activities. Adoption of SFAS 161 had no
impact on the Company’s financial statements.
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 became effective on November 15, 2008, which was 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 has not changed
the Company’s current accounting practices.
7
On April
9, 2009 the FASB issued Staff Position (“FSP”) No. 107-1 and APB 28-1 “Interim
Disclosures about Fair Value of Financial Instruments”. This FSP
shall be effective for interim reporting periods ending after June 15, 2009,
with early adoption permitted for periods ending after March 15,
2009. The Company has not elected to early adopt this
pronouncement.
On April
9, 2009 the FASB issued Staff Position No. 115-2 and FAS 124-2 “Recognition and
Presentation of Other-Than-Temporary-Impairments”. This FSP shall be
effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. The
Company has not elected to early adopt this pronouncement.
On April
9, 2009 the FASB issued FSP FAS 157-4 “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly”. This FSP shall be
effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. The
Company has not elected to early adopt this pronouncement.
|
5.
|
Investments
|
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.
|
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.
|
8
The
following available-for-sale securities are re-measured to fair value on a
recurring basis and are valued using Level 1 inputs and the market approach as
defined by SFAS 157:
|
Unrealized
|
||||||||||||
|
March 31,
2009
|
Cost
|
Fair Value
|
Gain/(Loss)
|
|||||||||
|
Available
for Sale:
|
||||||||||||
|
U.S. Treasury and agencies
|
||||||||||||
|
Mature
within 1 year
|
$ | 1,643,559 | $ | 1,666,513 | $ | 22,954 | ||||||
|
Mature
1-5 years
|
1,654,854 | 1,702,889 | 48,035 | |||||||||
|
Total
US Treasury and agencies
|
3,298,413 | 3,369,402 | 70,989 | |||||||||
|
Fixed income mutual funds
|
4,759,761 | 4,469,620 | (290,141 | ) | ||||||||
|
Equity and other mutual funds
|
241,392 | 149,570 | (91,822 | ) | ||||||||
| $ | 8,299,566 | $ | 7,988,592 | $ | (310,974 | ) | ||||||
|
Cost
|
Fair Value
|
Unrealized
Gain/(Loss)
|
||||||||||
|
Available
for Sale:
|
||||||||||||
|
U.S. Treasury and agencies
|
||||||||||||
|
Mature
within 1 year
|
$ | 1,140,227 | $ | 1,153,798 | $ | 13,571 | ||||||
|
Mature
1-5 years
|
2,458,685 | 2,536,931 | 78,246 | |||||||||
|
Total
US Treasury and agencies
|
3,598,912 | 3,690,729 | 91,817 | |||||||||
|
Fixed income mutual funds
|
4,715,827 | 4,380,669 | (355,158 | ) | ||||||||
|
Equity and other mutual funds
|
240,494 | 167,785 | (72,709 | ) | ||||||||
| $ | 8,555,233 | $ | 8,239,183 | $ | (316,050 | ) | ||||||
Proceeds from the sale and redemption
of US Treasury and agency bonds amounted to $300,000 for the three months ended
March 31, 2009, which included a realized loss of $498. An insignificant amount
was reclassified out of unrealized losses for the three-month period ended March
31, 2009. There were no sales or redemptions of marketable securities
for the three months ended March 31, 2008.
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.
|
6.
|
Inventories
- Net
|
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Inventories
consist of the following:
|
||||||||
|
Raw
materials and work in process
|
$ | 524,333 | $ | 422,437 | ||||
|
Finished
products
|
656,383 | 922,142 | ||||||
| $ | 1,180,716 | $ | 1,344,579 | |||||
As of
March 31, 2009 and December 31, 2008 the Company had reserves of $39,000 for
slow moving and obsolete inventory.
9
|
7.
|
Supplemental
Financial Statement Information
|
For
purposes of the Statement of Cash Flows, the Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Cash
payments for taxes were $83,420 and $455 for the three months ended March 31,
2009 and 2008, respectively. There were no payments for interest
during the three months ended March 31, 2009 and March 31, 2008.
Research
and development expenses amounted to $102,320 and $94,489 for the three months
ended March 31, 2009 and March 31, 2008, respectively, and are included in
operating expenses.
The
Company paid dividends of $1,385,003 ($0.28 per share) during the periods ended
March 31, 2009 and March 31, 2008.
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 value 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 loses 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
approximate fair value.
|
8.
|
Income
Taxes
|
The
Company’s tax provision is based on its estimated annual effective tax
rate.
The
Company follows the provisions of FIN 48. 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, 2008 and March 31,
2009, the Company did not have any unrecognized tax benefits.
The
Company files consolidated Federal income tax returns in the U.S., and separate
income tax returns in New York State. The Company is subject to examination by
the Internal Revenue Service for years 2005 through 2008 and by New York State
for years 2005 through 2008.
The
Company's policy is to recognize interest and penalties in Interest
Expense.
10
|
9.
|
Comprehensive
Income
|
The
components of comprehensive income are as follows:
|
Three
months ended
March
31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Net
income
|
$
|
1,155,241
|
$
|
839,268
|
||||
|
Other
comprehensive income:
|
||||||||
|
Unrealized
gain on marketable securities
during period
|
5,072
|
41,608
|
||||||
|
Income
tax expense related to other comprehensive
income
|
1,758
|
14,422
|
||||||
|
Other
comprehensive income, net of tax
|
3,314
|
27,186
|
||||||
|
Comprehensive
income
|
$
|
1,158.555
|
$
|
866,454
|
||||
Accumulated
other comprehensive income comprises unrealized gains and losses on marketable
securities and liability for pension benefit net of the related tax
effect.
|
Defined
Benefit Pension Plan and New Defined Contribution
Plan
|
The
Company sponsors a non-contributory defined benefit plan (“Plan”) for its
employees and adopted FAS 158 effective December 31, 2006. As of
December 31, 2007 the Company curtailed future benefit accruals to the Plan and
reported the effect of the curtailment through December 31, 2008. The
following table sets forth the components of the projected net periodic benefit
costs (income) for the year ending December 31, 2009 and the actual net periodic
benefit cost for the year ended December 31, 2008.
|
2009
|
2008
|
|||||||
|
(projected)
|
||||||||
|
Interest
cost – projected benefit obligation
|
$ | 113,864 | $ | 176,429 | ||||
|
Expected
return on plan assets
|
(131,315 | ) | (232,109 | ) | ||||
|
Effect
of special events
|
--- | 112,552 | ||||||
|
Amortization
of net (gain)/loss
|
6,659 | --- | ||||||
|
Net
periodic benefit (income) costs
|
$ | (10,792 | ) | $ | 56,872 | |||
The
Company made cash contributions totaling $38,636 to the Plan during the
three-month period ended March 31, 2008 and did not make any
contributions to the Plan in 2009. The Company recorded income applicable to the
plan of $2,698 and $11,142 for the three months ended March 31, 2009
and March 31, 2008 respectively. These amounts are
included in operating expense.
As of
December 31, 2007 the Company froze future benefit accruals to the Plan while it
investigated the advisability of replacing the Plan with a defined contribution
plan, to be coordinated with, and be part of, the Company’s 401(k) plan. On
February 19, 2008, the Company decided to terminate the Plan, subject to
regulatory approval, and has initiated the steps necessary to do
so. The Company expects to obtain regulatory approval in late 2009 or
early 2010.
11
Upon
termination of the Plan, non-vested benefits will become fully
vested. Any resulting gain will first be offset against any existing
net loss included in accumulated other comprehensive income.
Under
FASB Statement No. 88, “Employers’ Accounting for Settlements and Contributions
of Defined Benefit Pension Plans and for Termination Benefits”, if the net
effect of a termination is a gain, the gain is to be recognized when the
termination occurs, which would be the date the employees are terminated or the
date the Plan is terminated.
For the
new defined contribution plan, the Company accrued $43,750 and $38,636 for
the three months ended March 31, 2009 and March 31, 2008,
respectively,
11. Other
Information
(a) Accrued
Expenses
|
March
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Accrued
401K plan contributions
|
$ | 43,750 | $ | 175,000 | ||||
|
Accrued
vacations
|
112,758 | 98,974 | ||||||
|
Accrued
bonuses
|
255,000 | 170,000 | ||||||
|
Accrued
annual report expenses
|
58,258 | 63,859 | ||||||
|
Accrued
distribution fees
|
226,705 | 213,541 | ||||||
|
Other
|
219,051 | 247,868 | ||||||
| $ | 915,522 | $ | 969,242 | |||||
(b)
Related Party
Transactions
During
the three-month periods ended March 31, 2009 and March 31, 2008, the Company
paid to Henry Globus, a former officer and current director of the Company
$5,574 and $5,334, respectively, for consulting services in accordance with his
employment termination agreement of 1988.
During
the three-month period ended March 31, 2009 the Company paid to Bonamassa,
Maietta and Cartelli, LLP $1,500 for accounting and tax
services. There were no payments to Bonamassa, Maietta and Cartelli,
LLP for the three-month period ended March 31,
2008. Lawrence Maietta, a partner in Bonamassa, Maietta
and Cartelli, LLP, is currently a director of the Company.
12
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
FORWARD
LOOKING STATEMENTS
Statements
made in this Form 10-Q which are not purely historical are forward-looking
statements with respect to the goals, plans, objectives, intentions,
expectations, financial condition, results of operations, future performance and
business of the Company. Forward-looking statements may be identified by the use
of such words as "believes," "may," "will," "should," "intends," "plans,"
"estimates," or "anticipates" or other similar expressions.
Forward-looking
statements involve inherent risks and uncertainties, and important factors (many
of which are beyond our control) could cause actual results to differ materially
from those set forth in the forward-looking statements. In addition to those
specific risks and uncertainties set forth in the Company's reports currently on
file with the SEC, some other factors that may affect the future results of
operations of the Company are: the development of products that may be superior
to those of the Company; changes in the quality or composition of the Company's
products; lack of market acceptance of the Company's products; the Company's
ability to develop new products; general economic or industry conditions;
intellectual property rights; changes in interest rates; new legislation or
regulatory requirements; conditions of the securities markets; the Company's
ability to raise capital; changes in accounting principles, policies or
guidelines; financial or political instability; acts of war or terrorism; and
other economic, competitive, governmental, regulatory and technical factors that
may affect the Company's operations, products, services and prices.
Accordingly,
results actually achieved may differ materially from those anticipated as a
result of such forward-looking statements, and those statements speak only as of
the date they are made. The Company does not undertake, and specifically
disclaims, any obligation to update any forward-looking statements to reflect
events or circumstances occurring after the date of such
statements.
OVERVIEW
The
Company is a Delaware corporation that conducts research, product development,
manufacturing and marketing of cosmetic ingredients, personal and health care
products, pharmaceuticals, and specialty industrial products. All of the
products that the Company manufactures, with the exception of its RENACIDIN
IRRIGATION®, are
produced at its facility in Hauppauge, New York, and are marketed through
marketing partners, distributors, wholesalers, direct advertising, mailings, and
trade exhibitions. Its most important personal care product line is its
LUBRAJEL® line of
water-based moisturizing and lubricating gels. It also sells two pharmaceutical
products for urological uses. Those products are sold primarily through the
major drug wholesalers, which in turn sell the products to pharmacies,
hospitals, nursing homes and other long-term care facilities, and to government
agencies, primarily the Veteran's Administration.
The
Company’s pharmaceutical products are distributed primarily in the United
States. Its personal care products are marketed worldwide by five marketing
partners, of which International Specialty Products Inc. ("ISP") purchases the
largest volume of products from the Company. Approximately one-half
of the Company's personal care products are sold, either directly or through the
Company’s marketing partners, to end-users located outside of the United
States.
13
The
Company recognizes revenue when products are shipped, title and risk of loss
pass to the customers, persuasive evidence of a sales arrangement exists, and
collections are reasonably assured. An allowance for returns, based
on historical experience, is taken as a reduction of sales within the same
period the revenue is recognized.
The
Company has been issued many patents and trademarks and intends, whenever
possible, to make efforts to obtain patents in connection with its product
development program.
CRITICAL
ACCOUNTING POLICIES
As
disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 the discussion and analysis of the Company’s financial
condition and results of operations are based on its financial statements, which
have been prepared in conformity with U.S. generally accepted accounting
principles. The preparation of those financial statements required the Company
to make estimates and assumptions that affect the carrying value of assets,
liabilities, revenues and expenses reported in those financial statements. Those
estimates and assumptions can be subjective and complex, and consequently actual
results could differ from those estimates and assumptions. The Company’s most
critical accounting policies relate to revenue recognition, concentration of
credit risk, inventory, pension costs, patents, and income taxes. Since December
31, 2008, there have been no significant changes to the assumptions and
estimates related to those critical accounting policies.
The
following discussion and analysis covers material changes in the financial
condition of the Company since the year ended December 31, 2008, and a
comparison of the results of operations for the three months ended March 31,
2009 and March 31, 2008. This discussion and analysis should be read in
conjunction with "Management's Discussion and Analysis or Plan of Operation"
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2008.
RESULTS
OF OPERATIONS
Sales
For the
three-month period ended March 31, 2009, net sales increased by $863,944 (28.5%)
as compared with March 31, 2008. The change in net sales for the
three-month period ended March 31, 2009 was almost entirely attributable to
increases in sales to two of the Company’s customers. Although there
were increases and decreases in sales volumes among its other customers, the net
increases to these two customers accounted for over 98% of the total sales
increase for the quarter ended March 31, 2009.
14
|
(a)
|
Personal care products:
For the three months ended March 31, 2009 the Company’s gross sales of
personal care products increased by $344,610 (17.7%) when compared with
the three months ended March 31, 2008. This increase was
primarily due to an increase in sales of approximately $506,000 (40.0%) to
the Company’s largest distributor for the three month period ended March
31, 2009 when compared with the comparable period in
2008.
|
|
(b)
|
Pharmaceuticals: Pharmaceutical
gross sales decreased by $56,088 (7.9%) for the three months ended March
31, 2009 compared with the same period in 2008. On April 1,
2008, the Company implemented a 4% price increase on its pharmaceutical
products, which resulted in customers purchasing slightly larger than
normal volumes in advance of the price increase. That was not
repeated in the first quarter of 2009 because the pharmaceutical price
increase for 2009 is not being implemented until May 1, 2009. The Company
expects revenue from pharmaceutical sales for the full year to equal or
exceed 2008 volume.
|
|
(c)
|
Medical (non-pharmaceutical)
products: Gross sales of the Company’s medical products
increased $599,921 (150.0%) for the three-month period ended March 31,
2009 when compared with the comparable period ended March 31,
2008. Sales of one of the Company’s medical products to one of
its primary customers increased by approximately $347,000 (495.0%) in the
three-month period ended March 31, 2009 when compared to the comparable
period in 2008. The Company has been advised that this increase
is primarily due to the customer bringing in substantial amounts of
additional inventory while it moves its manufacturing operations to Mexico
This customer has already purchased over 85% of its entire 2008 sales
volume in the first quarter of 2009. The Company expects sales to this
customer to decline significantly for the remainder of this year while the
operations are being transferred, but still expects sales to this customer
to be at least 40% above last year’s levels by the end of the
year.
|
|
(d)
|
Industrial products:
Gross sales of the Company’s industrial products decreased $6,465
(21.8%) for the three-month period ending March 31, 2009 when compared
with the comparable period in 2008.
|
In
addition to the above changes in sales, net sales allowances increased by
$18,034 (29.0%) for the three months ended March 31, 2009 when compared with the
same quarter in 2008. This increase was primarily due to increases in
allowances for distribution fees.
Cost of
Sales
Cost of
sales as a percentage of sales decreased to 39.7% for the three months ended
March 31, 2009 from 40.8% for the comparable period in
2008. This decrease was primarily due to a decrease
in cost of the Company’s most significant raw material.
Operating
Expenses
Operating
expenses consist of selling, general, and administrative expenses. Operating
expenses increased $50,673 (7.7%) for the three months ended March 31, 2009
compared with the comparable period in 2008. This increase was primarily
attributable to increases in payroll and payroll-related expenses.
15
Investment
income decreased $36,725 (28.6%) for the three months ended March 31, 2009 when
compared with the comparable period in 2008. This decrease was mainly
attributable to a decrease in interest rates and to lower returns on investments
in 2009.
Provision for Income
Taxes
The
provision for income taxes increased by $159,200 (38.3%) for the three months
ended March 31, 2009 when compared with the comparable period in
2008. This increase is mainly due to an increase in income from
operations before taxes of $475,173 (37.9%) in 2009 when compared with
2008.
The
Company's effective income tax rate increased to 33.2% for the three months
ended March 31, 2009 compared with 33.1% for the comparable period in
2008.
LIQUIDITY
AND CAPITAL RESOURCES
Working
capital increased by $1,192,975 to $14,429,655 at March 31, 2009 from
$13,236,680 at December 31, 2008. The current ratio increased to 9.7 to 1 at
March 31, 2009 from 6.2 to 1 at December 31, 2008. The increase in the current
ratio was primarily due to the effect of a decrease in dividends
payable.
During
the three-month period ended March 31, 2009 the average period of time that an
account receivable was outstanding was approximately 34 days. The average period
of time that an account receivable was outstanding during the three-month period
ended March 31, 2008 was 45 days, which was mainly due to a few customers who
were paying more slowly than normal at that time.
The
Company believes that its working capital is and will continue to be sufficient
to support its operating requirements for at least the next twelve
months. The Company does not expect to incur any significant capital
expenditures for the remainder of 2009.
The
Company generated cash from operations of $1,764,429 and $1,011,137 for the
three months ended March 31, 2009 and March 31, 2008, respectively. The increase
was primarily due to an increase in net income and a decrease in receivables
days outstanding.
Cash
provided by investing activities for the three-month period ended March 31, 2009
was $247,940, while cash used in investing activities for the three-month period
ending March 31, 2008 was $411,028. This increase was primarily due to a
decrease in purchases of plant equipment and marketable securities and an
increase in the redemption of marketable securities.
Cash used
in financing activities was $1,387,000 for the three months ended March 31, 2009
and March 31, 2008. These activities were mainly related to
dividend payments
There
were no cash flows in investing or financing activities from discontinued
operations during 2009 and 2008.
16
RECENT
ACCOUNTING PRONOUNCEMENTS
Please
see Note 4 to the Financial Statements for a description of recent accounting
pronouncements, including the expected dates of adoption and the anticipated
impact on the financial statements.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company has no off balance sheet transactions that have, or are reasonably
likely to have, a current or future effect on the Company’s financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
The
information to be reported under this item is not required of smaller reporting
companies.
The
information to be reported under this item is not required of smaller reporting
companies.
|
(a)
|
DISCLOSURE CONTROLS
AND PROCEDURES
|
The
Company’s management, including its Principal Executive Officer and Principal
Financial Officer, has evaluated the design, operation, and effectiveness of the
Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the
Securities Exchange Act of 1934 (the “Exchange Act”). There are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon the evaluation
performed by the Company’s management, including its Principal Executive Officer
and Principal Financial Officer, it was determined that, as of the end of the
period covered by this quarterly report, the Company’s disclosure controls and
procedures were effective in providing reasonable assurance that information
required to be disclosed in the 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 the Company’s management, including its
Principal Executive Officer and Principal Financial Officer, or persons
performing similar functions, as appropriate, to allow timely decisions
regarding disclosures.
The
Company's Principal Executive Officer and Principal Financial Officer have
determined that, during the period covered by this quarterly report, there were
no changes in the Company's internal control over financial reporting that
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting. They have also
concluded that there were no significant changes in the Company’s internal
controls after the date of the evaluation.
17
PART
II - OTHER INFORMATION
|
LEGAL
PROCEEDINGS
|
NONE
|
RISK
FACTORS
|
The
information to be reported under this item is not required of smaller reporting
companies.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
|
NONE
|
DEFAULTS
UPON SENIOR SECURITIES
|
NONE
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
NONE
ITEM
5. OTHER
INFORMATION
NONE
ITEM
6. EXHIBITS
AND REPORTS ON FORM 8-K
(a) Exhibits
|
|
31.1 |
Certification
of Kenneth H. Globus, President and principal executive officer of the
Company, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
31.2
|
Certification
of Robert S. Rubinger, Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1 |
Certification
of Kenneth H. Globus, President and principal executive officer of the
Company, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2 |
Certification
of Robert S. Rubinger, Chief Financial Officer of the Company, pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.
|
(b) Reports
on Form 8-K
There
were two reports on Form 8-K filed during the fiscal quarter ended March 31,
2009. The first was filed on March 3, 2009, and related to the issuance of a
press release announcing that the Company’s stock would now be listed on the
NASDAQ stock market rather than the NYSE Alternext (now known as NYSE
AMEX) stock exchange. The second was filed on March 20, 2009 and
related to the issuance of a press release that announced the Company’s
financial results for the fiscal year ended December 31, 2008.
18
In
accordance with the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED-GUARDIAN,
INC.
(Registrant)
By: /S/ KENNETH H.
GLOBUS
Kenneth
H. Globus
President
By: /S/ ROBERT S.
RUBINGER
Robert S. Rubinger
Date: May 14,
2009 Chief
Financial Officer
19