UNITED GUARDIAN INC - Quarter Report: 2012 September (Form 10-Q)

[x]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

[  ]	TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

 

 

	Large accelerated filer	[    ]
	Non-accelerated filer	[    ]	(Do not check if a smaller reporting company)
	Accelerated filer	[    ]
	Smaller reporting company	[ x ]

 

                                                             Yes  [  ]  No  [x]

Part I.  FINANCIAL INFORMATION
	Item 1 -	Condensed Financial Statements (unaudited unless otherwise indicated):
		Statements of Income - Three and Nine Months ended September 30, 2012 and 2011	2
		Statements of Comprehensive Income - Three and Nine Months ended September 30, 2012 and 2011	3
		Balance Sheets – September 30, 2012 (unaudited)  and December 31, 2011(audited)	4-5
		Statements of Cash Flows –  Nine months ended September 30, 2012 and 2011	6
		Notes to Condensed Financial Statements	7-11
	Item 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations	11-16
	Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	17
	Item 4 -	Controls and Procedures	17
Part II. OTHER INFORMATION
	Item 1 -	Legal Proceedings	17
	Item 1A -	Risk Factors	17
	Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3 -	Defaults Upon Senior Securities	18
	Item 4 -	Mine Safety Disclosures	18
	Item 5 -	Other Information	18
	Item 6 -	Exhibits	18
Signatures			18

 

 

UNITED-GUARDIAN, INC.   STATEMENTS OF INCOME (UNAUDITED)
		THREE MONTHS ENDED SEPTEMBER 30,								NINE MONTHS ENDED SEPTEMBER 30,
		2012				2011				2012				2011
Net sales		$	3,527,387			$	3,345,035			$	11,151,179			$	11,047,383
Costs and expenses:
Cost of sales			1,334,491				1,229,561				4,339,450				4,318,444
Operating expenses			598,100				537,248				1,749,217				1,759,177
Total costs and expenses			1,932,591				1,766,809				6,088,667				6,077,621
Income from operations			1,594,796				1,578,226				5,062,512				4,969,762
Other income:
Investment income			51,065				61,308				162,413				205,211
Gain on sale of assets			---				12,267				2,750				18,251
Income from damage settlement			---				385,182				---				385,182
Total other income			51,065				458,757				165,163				608,644
Income before income taxes			1,645,861				2,036,983				5,227,675				5,578,406
Provision for income taxes			529,700				667,700				1,689,800				1,818,300
Net Income		$	1,116,161			$	1,369,283			$	3,537,875			$	3,760,106
Earnings per common share (Basic and Diluted)		$	0.24			$	0.30			$	0.77			$	0.82
Weighted average shares – basic and diluted			4,596,439				4,596,439				4,596,439				4,596,439

 

UNITED-GUARDIAN, INC.
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
		THREE MONTHS ENDED SEPTEMBER 30,								NINE MONTHS ENDED SEPTEMBER 30,
		2012				2011				2012				2011
Net income		$	1,116,161			$	1,369,283			$	3,537,875			$	3,760,106
Other comprehensive income:
Unrealized gain (loss) on marketable securities			150,846				(48,671	)			315,379				21,576
Income tax (expense) benefit related to other comprehensive income			(52,429	)			16,869				(109,457	)			(7,478	)
Other comprehensive income, net of tax			98,417				(31,802	)			205,922				14,098
Comprehensive income		$	1,214,578			$	1,337,481			$	3,743,797			$	3,774,204

 

 

ASSETS		SEPTEMBER 30, 2012				DECEMBER 31, 2011
		(UNAUDITED)
Current assets:
Cash and cash equivalents		$	1,695,602			$	1,090,974
Marketable securities			11,185,589				9,295,755
Accounts receivable, net of allowance for doubtful accounts of $18,000 at September 30, 2012 and December 31, 2011			1,482,541				1,653,440
Inventories (net)			1,124,250				1,467,434
Prepaid expenses and other current assets			103,639				163,034
Prepaid income taxes			---				78,613
Deferred income taxes			223,546				223,546
Total current assets			15,815,167				13,972,796
Property, plant and equipment:
Land			69,000				69,000
Factory equipment and fixtures			3,786,037				3,694,379
Building and improvements			2,725,993				2,714,780
Waste disposal plant			133,532				133,532
Total property, plant and equipment			6,714,562				6,611,691
Less: Accumulated depreciation			5,500,746				5,366,204
Total property, plant and equipment, net			1,213,816				1,245,487
Other assets			9,418				37,672
TOTAL ASSETS		$	17,038,401			$	15,255,955

 

UNITED-GUARDIAN, INC.     BALANCE SHEETS (continued)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY
		SEPTEMBER 30, 2012				DECEMBER 31, 2011
Current liabilities:		(UNAUDITED)
Accounts payable		$	163,463			$	400,389
Accrued expenses			686,940				676,959
Income taxes payable			86,642				---
Total current liabilities			937,045				1,077,348
Deferred income taxes			174,035				64,578
Stockholders’ equity:
Common stock $.10 par value, authorized, 10,000,000 shares; 4,596,439 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively.			459,644				459,644
Accumulated other comprehensive income			240,534				34,612
Retained earnings			15,227,143				13,619,773
Total stockholders’ equity			15,927,321				14,114,029
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	17,038,401			$	15,255,955

 

UNITED-GUARDIAN, INC.   STATEMENTS OF CASH FLOWS (UNAUDITED)
		NINE MONTHS ENDED SEPTEMBER 30,
		2012				2011
Cash flows from operating activities:
Net income		$	3,537,875			$	3,760,106
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			181,916				193,732
Realized loss on sale of marketable securities			39,214				17,849
Realized gain on sale of assets			(2,750	)			(18,251	)
Amortization of bond premium			---				559
Provision for bad debts							(4,237	)
Increase (decrease) in cash resulting from changes in operating assets and liabilities:
Accounts receivable			170,899				(356,137	)
Inventories			343,184				(264,101	)
Prepaid expenses and other current and non-current assets			59,395				198,842
Prepaid taxes			78,613				---
Accounts payable			(236,926	)			59,214
Accrued expenses and taxes payable			96,623				181,310
Net cash provided by operating activities			4,268,043				3,768,886
Cash flows from investing activities:
Acquisition of property, plant and equipment			(121,992	)			(250,297	)
Proceeds from sale of assets			2,750				38,658
Proceeds from sale of marketable securities			1,716,244				1,540,000
Purchases of marketable securities			(3,329,913	)			(3,880,727	)
Net cash used in investing activities			(1,732,911	)			(2,552,366	)
Cash flows from financing activities:
Dividends paid			(1,930,504	)			(1,654,718	)
Net cash used in financing activities			(1,930,504	)			(1,654,718	)
Net increase (decrease) in cash and cash equivalents			604,628				(438,198	)
Cash and cash equivalents at beginning of period			1,090,974				1,514,589
Cash and cash equivalents at end of period		$	1,695,602			$	1,076,391

 

 

 

1.	Nature of Business

 

 

 

3.	Stock-Based Compensation

 

 

As of September 30, 2012, the Company had no share-based awards outstanding and exercisable and did not grant any options during the nine months ended September 30, 2012.

 

As of September 30, 2012, there were no remaining unrecognized compensation costs related to the non-vested share-based compensation arrangements granted under the Company's plans.

 

The Company did not record any stock-based compensation expense during the nine-month periods ended September 30, 2012 and 2011.

 

The Company did not receive any proceeds from the exercise of options during the nine-month periods ended September 30, 2012 and 2011.

 

4.	Recent Accounting Pronouncements

 

In June 2011, FASB issued an amendment to the disclosure requirements for the presentation of comprehensive income. The amendment requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective retrospectively for the interim periods and annual periods beginning after December 15, 2011. The Company adopted this amendment effective January 1, 2012. The adoption of this amendment did not have a material impact on the Company's results of operation.

 

5.	Investments

 

The fair values of the Company’s marketable securities are determined in accordance with GAAP, with fair value being defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions,  the Company utilizes the three-tier value hierarchy, as prescribed by GAAP, which prioritizes the inputs used in measuring fair value, as follows:

September 30, 2012		Cost				Fair Value				Unrealized Gain/(Loss)
Corporate bonds
Maturities after 1 year through 5 years		$	203,920			$	204,296			$	376
Fixed income mutual funds			10,340,383				10,682,773				342,390
Equity and other mutual funds			272,934				298,520				25,586
		$	10,817,237			$	11,185,589			$	368,352

December 31, 2011
Available for Sale:
U.S. Treasury and agencies
Mature within 1 year		$	249,137			$	234,388			$	(14,749	)
Corporate bonds
Mature within 1 year			267,251				247,719				(19,532	)
Maturities after 1 year through 5 years			203,920				195,899				(8,021	)
Total corporate bonds			471,171				443,618				(27,553	)
Fixed income mutual funds			8,268,624				8,372,216				103,592
Equity and other mutual funds			253,850				245,533				(8,317	)
		$	9,242,782			$	9,295,755			$	52,973

 

6.	Inventories

 

		September 30, 2012				December 31, 2011
Inventories consist of the following:
Raw materials and work in process		$	632,813			$	470,532
Finished products			491,437				996,902
		$	1,124,250			$	1,467,434

 

 

7.	Supplemental Financial Statement Information

 

 

 

The Company paid $1,930,504 ($0.42 per share) and $1,654,718 ($0.36 per share) in dividends for the nine months ended September 30, 2012 and September 30, 2011, respectively.

 

Research and development expenses amounted to $536,509 and $489,988 for the nine–month period ended September 30, 2012 and September 30, 2011, respectively, and $246,119 and $229,839 for the three-month period ended September 30, 2012 and September 30, 2011, respectively.

 

8.	Income Taxes

 

The Company’s tax provision is based on its estimated annual effective rate.  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 September 30, 2012 and December 31, 2011, the Company did not have any unrecognized tax benefits.

 

The Company files consolidated Federal income tax returns in the U.S. with its inactive subsidiary, and separate income tax returns in New York State. The Company is subject to examination by the Internal Revenue Service and by New York State for years 2009 through 2011.

 

 

9.	Comprehensive Income

 

Accumulated other comprehensive income comprises unrealized gains and losses on marketable securities net of the related tax effect.

 

10.	Defined Contribution Plan

11.	Related-Party Transactions

 

 

 

 

 

12.	Other Information

 

Accrued Expenses

 

 

13.	Other Income

 

 

 

FORWARD-LOOKING STATEMENTS

 

 

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; changes in 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 RENACIDIN, 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 U.S. Department of Veterans Affairs.

 

 

While the Company does have competition in the marketplace for some of its products, many of its products are either unique in their field or have some unique characteristics, and therefore are not in direct competition with the products of other pharmaceutical, specialty chemical, or health care companies. Many of the Company’s products are manufactured using patented or proprietary processes. The Company’s research and development department is actively working on the development of new products to expand the Company's line of personal care and performance products.

 

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, 2011, 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 (GAAP). 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, and income taxes. Since December 31, 2011, 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, 2011, and a comparison of the results of operations for the three and nine months ended September 30, 2012 and September 30, 2011. 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, 2011.

 

RESULTS OF OPERATIONS

 

Sales

 

 

(a)

Pharmaceuticals: The Company’s RENACIDIN product typically accounts for approximately 85% of the Company’s net sales of pharmaceutical products. Over the past 20 months, RENACIDIN experienced two disruptions in production at the Company’s third-party manufacturing facility, both of which led to product shortages. The first disruption began in November 2010 and lasted until May 2011, and was caused by regulatory issues at the third-party’s manufacturing facility. The issues were unrelated to the Company’s product, but disrupted all production at that facility. When product became available in May 2011, there was a surge in orders, not only due to the need of the Company’s distributors to restock their depleted inventories, but also because of the desire on the part of the distributors to avoid a price increase that was to go into effect on June 1, 2011. The result was unusually strong RENACIDIN sales in the second quarter of 2011.

 

 

 

 

 

 

 

 

 

 

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Working capital increased by $1,982,674 to $14,878,122 at September 30, 2012 from $12,895,448 at December 31, 2011. The current ratio increased to 16.88 to 1 at September 30, 2012, up from 12.97 to 1 at December 31, 2011. The increase in working capital and the current ratio were primarily due to an increase in marketable securities and a decrease in accounts payable.

 

During the nine-month period ended September 30, 2012 the average period of time that an account receivable was outstanding was approximately 39 days. The average period of time that an account receivable was outstanding during the nine-month period ended September 30, 2011 was 31 days. The increase for 2012 was the result of more favorable payment terms given to some international customers due to longer shipping times.

 

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 2012.

 

The Company generated cash from operations of $4,268,043 and $3,768,886 for the nine months ended September 30, 2012 and September 30, 2011, respectively. The increase was primarily due to decreases in account receivable and inventory.

 

Cash used in investing activities for the nine-month period ended September 30, 2012 and September 30, 2011 was $1,732,911, and $2,552,366, respectively. This decrease was primarily due to a decrease in the purchases of marketable securities in the nine months ended September 30, 2012 compared with the nine months ended September 30, 2011.

 

Cash used in financing activities was $1,930,504 and $1,654,718 for the nine months ended September 30, 2012 and September 30, 2011, respectively.  This increase was mainly due to an increase in dividend paid per share, from $0.36 per share in 2011 to $0.42 per share in 2012.

 

The Company expects to continue to use its cash to make dividend payments, to purchase marketable securities, and to take advantage of other opportunities that are in the best interest of the Company and its shareholders, should they arise.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

 

 

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.

 

 

 

 

(a)	DISCLOSURE CONTROLS AND PROCEDURES

 

The Company’s management, including its Principal Executive Officer and Chief 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 Chief 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 Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosures.

 

(b)	CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

 

 

PART II - OTHER INFORMATION

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

NONE

 

NONE

 

ITEM 6.

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	Certifications of the Principal Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

	UNITED-GUARDIAN, INC.
	(Registrant)
	By:	/S/  KENNETH H. GLOBUS
		Kenneth H. Globus President
	By:	/S/  ROBERT S. RUBINGER
		Robert S. Rubinger Chief Financial Officer

 

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