U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
For the quarterly period ended September 30, 2003
------------------
_______ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to ___________
Commission File Number 1-10526
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UNITED-GUARDIAN, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-1719724
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
230 Marcus Boulevard., Hauppauge, New York 11788
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(Address of Principal Executive Offices)
(631) 273-0900
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the Company was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Cover Page 1 of 2 Pages
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the Company filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes _________ No ____________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
4,912,239
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Cover Page 2 of 2 Pages
UNITED-GUARDIAN, INC.
INDEX
Page No.
----------
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income - Three and
Nine Months Ended September 30, 2003 and 2002........... 2
Consolidated Balance Sheets -
September 30, 2003 and December 31, 2002................ 3-4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2003 and 2002............. 5
Consolidated Notes to Financial Statements............... 6-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 11-14
Item 3 - Controls and Procedures................................... 14-15
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings............................................ 15
Item 2 - Changes in Securities and Use of Proceeds.................... 15
Item 3 - Defaults Upon Senior Securities.............................. 15
Item 4 - Submission of Matters to a Vote of Security Holders.......... 15
Item 5 - Other Information............................................ 15
Item 6 - Exhibits and Reports On Form 8-K.......................... 15-16
Signatures................................................................16
1
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
------ ------ ------ ------
Revenue:
Net sales $ 8,632,494 $ 6,796,553 $ 2,315,417 $ 2,085,937
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 4,018,227 3,726,051 964,711 1,174,265
Operating expenses 1,829,687 1,698,670 566,879 562,921
---------- ---------- ---------- ----------
5,847,914 5,424,721 1,531,590 1,737,186
Income from ---------- ---------- ---------- ----------
operations 2,784,580 1,371,832 783,827 348,751
Other income (expense):
Investment income 118,291 144,075 39,127 44,987
Gain on sale of assets 500 79 - -
Other (25) (49) - -
Income before ---------- ---------- ---------- ---------
income taxes 2,903,346 1,515,937 822,954 393,738
Provision for income taxes 1,032,000 528,548 290,000 135,548
--------- --------- --------- ---------
Net income $ 1,871,346 $ 987,389 $ 532,954 $ 258,190
========= ========= ========= =========
Earnings per common share
(basic and diluted) $ 0.38 $ 0.20 $ 0.11 $ 0.05
========= ========= ========= =========
Weighted average shares
- basic 4,892,737 4,877,478 4,910,022 4,881,139
========= ========= ========= =========
Weighted average shares
- diluted 4,910,370 4,889,870 4,930,761 4,888,794
========= ========= ========= =========
See notes to financial statements
2
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------ -------------
ASSETS (UNAUDITED) (DERIVED FROM AUDITED
FINANCIAL STATEMENTS)
Current assets:
Cash and cash equivalents $ 1,666,853 $ 3,184,599
Temporary investments 2,280,036 4,151,787
Marketable securities 6,005,562 882,243
Accounts receivable, net of
allowance for doubtful accounts
of $25,500 at September 30, 2003 and
and December 31, 2002 respectively 1,037,985 704,560
Inventories (net) 845,948 1,037,315
Prepaid expenses and other
current assets 173,900 342,476
Deferred income taxes 279,947 297,774
----------- -----------
Total current assets 12,290,231 10,600,754
----------- -----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 2,797,500 2,738,110
Building and improvements 2,068,266 2,045,588
Waste disposal plant 133,532 133,532
----------- -----------
5,068,298 4,986,230
Less: Accumulated depreciation 4,021,716 3,880,660
----------- -----------
1,046,582 1,105,570
----------- -----------
Other assets:
Processes and patents, net of
accumulated amortization of
$981,635 and $981,341 at
September 30, 2003 and December 31,
2002, respectively 163 456
Other 700 700
----------- -----------
863 1,156
----------- -----------
$ 13,337,676 $ 11,707,480
=========== ===========
See notes to financial statements
3
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPETMBER 30, DECEMBER 31,
2003 2002
--------------- ------------
LIABILITIES AND (UNAUDITED) (DERIVED FROM AUDITED
STOCKHOLDERS' EQUITY FINANCIAL STATEMENTS)
Current liabilities:
Dividends payable $ - $ 488,114
Accounts payable 220,407 188,868
Accrued expenses 315,547 345,407
Taxes payable 101,483 -
--------- ---------
Total current liabilities 637,437 1,022,389
--------- ---------
Deferred income taxes 10,000 10,000
--------- ---------
Stockholders' equity:
Common stock $.10 par value,
authorized, 10,000,000 shares;
4,974,239 and 4,943,339 shares
issued, respectively; 4,912,039
and 4,881,139 shares outstanding,
respectively 497,424 494,334
Capital in excess of par value 3,649,168 3,538,423
Accumulated other comprehensive loss (25,809) (55,776)
Retained earnings 8,929,086 7,057,740
Treasury stock, at cost; 62,200 shares (359,630) (359,630)
--------- ---------
Total stockholders' equity 12,690,239 10,675,091
--------- ---------
$ 13,337,676 $ 11,707,480
========== ==========
See notes to financial statements
4
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------
2003 2002
------- -------
Cash flows provided by operating activities:
Net income $ 1,871,346 $ 987,389
Adjustments to reconcile net earnings
to net cash flows from operations:
Depreciation and amortization 149,349 192,320
Amortization of bond premium 5,548 9,144
Net gain on sale of equipment (500) (79)
Provision for doubtful accounts 11,406 -
Provision for inventory obsolescence 125,800 -
(Increase) decrease in assets:
Accounts receivable (344,831) 64,618
Inventories 65,567 (19,350)
Prepaid expenses and other current
and non-current assets 168,576 11,085
Increase (decrease) in liabilities:
Accounts payable 31,539 126,935
Accrued expenses and taxes payable 71,623 27,841
---------- --------
Net cash provided by operating activities 2,155,423 1,399,903
---------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (90,068) (102,341)
Proceeds from sale of equipment 500 14,500
Net change in temporary investments 1,871,751 332,014
Proceeds from sale of marketable securities 480,000 -
Purchase of marketable securities (5,561,073) (2,924)
---------- --------
Net cash provided by (used in)
investing activities (3,298,890) 241,249
---------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 113,835 35,975
Dividends paid (488,114) (487,044)
---------- --------
Net cash used in financing activities (374,279) (451,069)
---------- --------
Net (decrease) increase in cash and
cash equivalents (1,517,746) 1,190,083
Cash and cash equivalents at beginning of period 3,184,599 1,599,857
---------- ---------
Cash and cash equivalents at end of period $ 1,666,853 $ 2,789,940
========== =========
See notes to financial statements
5
UNITED-GUARDIAN, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
2003 and the results of operations and cash flows for the three and nine months
ended September 30, 2003 and 2002. The accounting policies followed by the
Company are set forth in the Company's financial statements included in its
December 31, 2002 Annual Report to Shareholders.
2. The results of operations for the three and nine months ended September
30, 2003 and 2002 are not necessarily indicative of the results to be expected
for the full year.
3. Stock-Based Compensation: At September 30, 2003, the Company had two
stock-based employee compensation plans. As permitted under SFAS NO. 148,
(Accounting for Stock-Based Compensation-Transition and Disclosure), which
amended SFAS NO. 123, (Accounting for Stock-Based Compensation), United-Guardian
has elected to continue to follow the intrinsic value method in accounting for
its stock-based employee compensation arrangement as defined by Accounting
Principle Board Opinion ("APB") No. 25, (Accounting for Stock Issued to
Employees), and related interpretations including Financial Accounting Standards
Board Interpretation No. 44, (Accounting for Certain Transactions involving
Stock Compensation), an interpretation of APB No. 25. The following table
illustrates the effect on net income and earnings per share if the company had
applied the fair value recognition provisions of SFAS No.123 to stock-based
employee compensation.
Nine months ended Three months ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Reported net income $1,871,346 $ 987,389 $532,954 $258,190
Stock-based employee compensation
expense included in reported net
income, net of related tax effects 0 0 0 0
Stock-based employee compensation
determined under the fair value based
method, net of related tax effect (15,957) 0 (2,762) 0
--------- -------- -------- --------
Pro forma net income $1,855,389 $987,389 $530,192 $258,190
========== ======== ======== ========
Earnings per share (basic and diluted)
As reported $ .38 $ .20 $ .11 $ .05
Pro forma $ .38 $ .20 $ .11 $ .05
6
4. Inventories - Net
Inventories consist of the following: September 30, December 31,
2003 2002
---------- ----------
Raw materials and work in process $ 302,495 $ 269,067
Finished products and fine chemicals 543,453 768,248
---------- ----------
$ 845,948 $1,037,315
========== ==========
At September 30, 2003 and December 31, 2002, the Company has reserved
$240,200 and $366,000 respectively for slow moving and obsolete inventory.
5. 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 $801,295 and $513,779 for the nine months
ended September 30, 2003 and 2002, respectively.
6. Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows:
Nine months ended September 30, Three months ended September 30,
2003 2002 2003 2002
------ ------ ------ ------
Net income $1,871,346 $ 987,389 $532,954 $258,190
--------- ------- ------- -------
Other comprehensive income (loss)
Unrealized gain (loss) on
marketable securities 47,795 (67,874) 25,552 (35,022)
------- ------- ------- -------
Income tax benefit on
comprehensive gain (loss) 17,827 (27,621) 9,547 (13,064)
------- ------- ------- -------
Other comprehensive income (loss) 29,968 (40,253) 16,021 (21,958)
------- ------- ------- -------
Comprehensive income $1,901,314 $ 947,136 $548,975 $236,232
========= ======= ======= =======
Accumulated other comprehensive income (loss) is comprised of unrealized
gains and losses on marketable securities, net of the related tax effect.
7
7. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share at September 30, 2003 and 2002.
Nine months ended Three months ended
September 30, September 30,
2003 2002 2003 2002
------ ------ ------ ------
Numerator:
Net income $1,871,346 $ 987,389 $ 532,954 $ 258,190
========= ======= ======= =======
Denominator:
Denominator for basic earnings
per share (weighted average
shares) 4,892,737 4,877,478 4,910,022 4,881,139
Effect of dilutive securities:
Employee stock options 17,633 12,392 20,739 7,655
--------- --------- --------- ---------
Denominator for diluted earnings
per share (adjusted weighted-average
shares) and assumed conversions 4,910,370 4,889,870 4,930,761 4,888,794
========= ========= ========= =========
Basic and diluted earnings per share $ 0.38 $ 0.20 $ 0.11 $ 0.05
========= ========= ========= =========
Options to purchase 8,500 and 2,833 shares of the Company's common stock
have been excluded from the computation of diluted earnings per share in the
three and nine months ended September 30, 2002, respectively, as their
inclusion would be antidilutive.
8. The Company has the following two reportable business segments:
Guardian Laboratories and Eastern Chemical. The Guardian segment conducts
research, development and manufacturing of pharmaceuticals, medical devices,
cosmetics, products and proprietary specialty chemical products. The Eastern
segment distributes fine chemicals, solutions, dyes and reagents.
The accounting policies used to develop segment information correspond to
those described in the summary of significant accounting policies as set forth
in the Annual Report for the year ended December 31, 2002. Segment earnings or
loss is based on earnings or loss from operations before income taxes. The
reportable segments are distinct business units operating in different
industries. They are separately managed, with separate marketing and
distribution systems. The following information about the two segments is for
the nine and three month periods ended September 30, 2003 and 2002.
8
Nine months ended September 30,
2003 2002
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 7,824,875 $ 807,619 $ 8,632,494 $ 5,859,785 $ 936,768 $ 6,796,553
Depreciation and amortization 64,852 - 64,852 105,186 - 105,186
Segment income (loss) before
income taxes 2,894,764 14,191 2,908,955 1,550,911 (51,638) 1,499,273
Segment assets 2,076,219 303,359 2,379,578 2,125,281 665,859 2,791,140
Expenditures for segment assets 62,808 - 62,808 34,819 - 34,819
Reconciliation to Consolidated Amounts
Income before income taxes
----------------------------
Total earnings for reportable segments $ 2,908,955 $ 1,499,273
Other income, net 118,766 144,105
Corporate headquarters expense (124,375) (127,441)
---------- ----------
Consolidated earnings before income
taxes $ 2,903,346 $ 1,515,937
========== ==========
Assets
------
Total assets for reportable segments $ 2,379,578 $ 2,791,140
Corporate headquarters 10,958,098 8,641,256
---------- ----------
Total consolidated assets $13,337,676 $11,432,396
========== ==========
Three months ended September 30,
2003 2002
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 2,086,738 $ 228,679 $ 2,315,417 $ 1,773,778 $ 312,159 $ 2,085,937
Depreciation and amortization 19,045 - 19,045 34,015 - 34,015
Segment income (loss) before
income taxes 767,923 54,179 822,102 420,141 (24,475) 395,666
9
Earnings before income taxes
----------------------------
Total income for reportable segments $ 822,102 $ 395,666
Other income, net 39,127 44,987
Corporate headquarters expense (38,275) (46,915)
---------- ---------
Consolidated earnings before income
taxes $ 822,954 $ 393,738
========== =========
Other significant items
-----------------------
Nine Months ended September 30,
2003 2002
------------------------------------------ -------------------------------------------
Segment Consolidated Segment Consolidated
Totals Corporate Totals Totals Corporate Totals
------------ ------------ ------------- ------------- ------------ -------------
Expenditures for assets 62,808 27,260 90,068 34,819 67,522 102,341
Depreciation and amortization 64,852 84,497 149,349 105,186 87,134 192,320
Geographic Information
----------------------
2003 2002
--------------------------- ---------------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
----------- ------------- ----------- -------------
United States $ 4,384,781 $ 1,046,745 $ 4,075,260 $ 1,129,163
France 1,069,869 893,559
Other countries 3,177,844 1,827,734
----------- ------------- ----------- -------------
$ 8,632,494 $ 1,046,745 $ 6,796,553 $ 1,129,163
=========== ============= =========== =============
Major Customers
---------------
Customer A (Guardian)* $ 3,523,475 $ 2,013,715
Customer B (Guardian) 876,078 696 215
All other customers 4,232,941 4,086,623
----------- -----------
$ 8,632,494 $ 6,796,553
=========== ===========
* At September 30, 2003 Customer A had a balance approximating 28% of accounts
receivable.
10
9. Impact of Recently Issued Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. Accordingly SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002.
Management believes that the adoption of SFAS No. 146 will not have a material
impact on its results of operations or financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-QSB 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 the 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 principals, 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 operates in two business
segments. Its Guardian Laboratories Division ("Guardian") conducts research,
product development, manufacturing and marketing of cosmetic ingredients,
personal and health care products, pharmaceuticals, and specialty industrial
11
products. The products manufactured by Guardian are marketed through marketing
partners, distributors, direct advertising, mailings, and trade exhibitions. Its
most important personal care product line is its LUBRAJEL(R) line of water based
moisturizing and lubricating gels. It also sells two pharmaceutical products,
which are distributed primarily through drug wholesalers and surgical supply
houses. There are also indirect sales to the Veteran's Administration and other
government agencies, and to some hospitals and physicians.
While the Company does have competition in the marketplace for some of its
products, many of its products or processes are either unique in their field or
have some unique characteristics, and therefore are not in direct competition
with the products or processes of other pharmaceutical, chemical, or health care
companies. Guardian's research and development department is actively working on
the development of new products to expand the Company's personal care line.
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.
The Company's Eastern Chemical subsidiary distributes an extensive line of
fine organic chemicals, research chemicals, test solutions, indicators, dyes and
reagents. Eastern's products are marketed through advertising in trade
publications and direct mailings and are sold to both to distributors and
directly to users for use in a wide variety of applications. Since the Company's
business activities and marketing efforts over the past several years have
focused increasingly on the Guardian division, which the Company believes has
greater growth potential, the Company is in the process of reducing Eastern's
inventory levels in order to make the subsidiary more marketable in the event
the Company decides to sell the Eastern operation at some future date.
Products manufactured by the Company are marketed worldwide through its
extensive marketing and distribution arrangements. Approximately half of the
Company's sales are to foreign customers.
The following discussion and analysis covers material changes in the
financial condition of the Company since year end December 31, 2002, and a
comparison of the results of operations for the three and nine month periods
ended September 30, 2003 and September 30, 2002. This discussion and analysis
should be read in conjunction with "Management's Discussion and Analysis or Plan
of Operation" included in the Company's Form 10-KSB for the year ended December
31, 2002.
RESULTS OF OPERATIONS
Gross revenue from operations
-----------------------------
For the nine month period ended September 30, 2003 net sales increased
$1,835,941 (27.0%) versus the comparable period in 2002. The Guardian
Laboratories division ("Guardian") had a sales increase of $1,965,090 (33.5%)
while the Eastern Chemical subsidiary ("Eastern") had a sales decrease of
$129,149 (13.8%).
12
For the three month period ended September 30, 2003 revenue increased
$229,480 (11.0%) over the comparable period in 2002. Guardian sales increased
$312,960 (17.6%), while Eastern sales decreased $83,480 (26.7%).
The increase in Guardian's sales for the three and nine month periods is
due to an overall increase in demand for Guardian's products. Some of this
demand may be attributable to new launches of personal care products that
contain ingredients produced by Guardian, by companies that had been refraining
from launching new products due to the poor economic conditions that have
prevailed in both the U.S. and overseas. Based on information provided to the
Company by its distributors, over the past year or so there has been an increase
in activity on the part of many customers, which has resulted in increased
demand for the Company's products.
The decline in Eastern's sales is believed to be due mainly to normal
fluctuations in the purchasing patterns of its customers, but may also be
partially attributable to some loss of business due to an inability to provide
some products as a result of the ongoing program to reduce Eastern's on-hand
inventory. The Company does not anticipate any significant increase or decrease
in Eastern's sales in the near future.
Cost of sales
-------------
Cost of sales as a percentage of sales decreased to 46.5% for the nine
months ended September 30, 2003 from 54.8% for the comparable period ended
September 30, 2002. For the three month period ended September 30, 2003 compared
to the three month period ended September 30, 2002 the cost of sales as a
percentage of sales decreased to 41.7% from 56.3%. This decrease is mainly due
to increased sales resulting in a favorable production variance of approximately
$125,000 for the three and nine month periods in 2003 as compared to the same
periods in the prior year. For the three months ended September 30, 2003, the
Company realized savings in disposal costs and obsolete inventory of
approximately $50,000 and $126,000 respectively. The Company had recorded such
reserves in prior years.
Excluding realized savings from disposal costs and obsolete inventory, cost
of sales, as a percentage of sales, would have been 50.0% for the nine month
period ended September 30, 2003 as compared to 54.8% for the comparable period
in the prior year. For the three months ended September 30, 2003, cost of sales
as a percentage of sales would have been 54.7% as compared to 56.3% for the
comparable period in the prior year.
Operating Expenses
------------------
Operating expenses increased $131,017 (7.7%) for the nine months ended
September 30, 2003 compared to the comparable period in 2002. For the three
month period ended September 30, 2003 operating expenses increased $3,958 (.7%)
over the comparable period in 2002. The increase for the nine month period was
primarily due to increases in insurance costs, advertising costs, and a one time
reserve for the payment of a civil fine (see "Legal Proceedings" below). For the
three month period increases in expenses due to the aforementioned civil penalty
and an increase in board of directors fees were offset by a decrease in payroll
and payroll related costs as compared to the same period in the prior year.
13
Investment income
---------------
Investment income decreased $25,784 (17.9%) for the nine months ended
September 30, 2003 as compared to the comparable period in 2002, and $5,860
(13.0%) for the three months ended September 30, 2003 when compared to the
comparable period in 2002. These decreases were attributable to a decline in
interest rates. Investment income is recorded net of brokerage fees.
Provision for income taxes
--------------------------
The provision for income taxes increased $503,452 (95.3%) for the nine
months ended September 30, 2003 when compared to the comparable period in 2002,
and $154,452 (113.9%) for the three months ended September 30, 2003 when
compared to the comparable period in 2002. These increases are due to increased
earnings before taxes of $1,387,409 for the nine months ended September 30, 2003
and $429,216 for the three months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $9,578,365 at December 31, 2002 to
$11,652,794 at September 30, 2003. The current ratio increased from 10.4 to 1 at
December 31, 2002 to 19.3 to 1 at September 30, 2003. The Company has no
commitments for any further significant capital expenditures during the
remainder of 2003, and believes that its working capital is and will continue to
be sufficient to support its operating requirements.
The company generated cash from operations of $2,155,423 and $1,399,903
for the nine months ended September 30, 2003 and September 30, 2002
respectively. The increase was primarily due to the increase in net income.
During the nine month period ended September 30, 2003 $3,298,890 was used
in investment activities, as compared to the nine months ended September 30,
2002 when $241,249 was provided by investing activities. The change from
$241,249 provided by investing activities in 2002 to $3,298,890 used in
investing activities in 2003 was due to an increase in purchases of marketable
securities (primarily bonds) and redemption of some certificates of deposit.
Cash used in financing activities was $374,279 and $451,069 for the nine
months ended September 30, 2003 and September 30, 2002 respectively. The
decrease is due primarily to an increase in stock options exercised during the
nine months ended September 30, 2003 as compared to the nine months ended
September 30, 2002.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Within 90 days prior to the filing of this Quarterly Report on Form 10-QSB
the Company's principal executive officer and principal financial officer
evaluated the effectiveness of the design and operation of Company's disclosure
14
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) and concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is accumulated and communicated to the Company's
management, including its officers, as appropriate to allow timely decisions
regarding required disclosure, and are effective to ensure that such information
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
(b Changes in Internal Controls
The Company's principal executive officer and principal financial officer
have also concluded there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
While the Company has claims arise from time to time in the ordinary
course of its business, the settlement of such claims in the past has not had a
material adverse effect on the Company's financial position and results of
operations.
In September, 2003 the Company was served with a complaint and proposed
order by the U.S. Environmental Protection Agency ("EPA") alleging that (a) the
Company had failed to perform certain testing of its pharmaceutical waste water
prior to having it disposed of by the licensed contractor it had been using for
many years, and (b) that it had failed to provide the proper paperwork regarding
such testing. Because the pharmaceutical waste generated by the Company is so
small (averaging only about 1% of its annual waste water) it was not aware that
it was subject to these requirements. The Company has met with the EPA, which
has accepted the Company's explanation that its failure to comply was
inadvertent, and has agreed to enter into a consent decree that neither admits
nor denies any liability but provides for the payment of a civil penalty of
$23,000. The EPA has agreed that as long as the Company files the required
reports that it will not pursue any further action and the matter will be
closed.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS: NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES: NONE
ITEM 4 - 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 Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
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31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
b. Reports on Form 8-K
There was one report on Form 8-K filed on August 5, 2003
pertaining to the issuance of an earnings release by the Company
on August 5, 2003.
SIGNATURES
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/ Alfred R. Globus
--------------------
Alfred R. Globus
Chief Executive Officer
By: /s/ Kenneth H. Globus
---------------------
Kenneth H. Globus
Chief Financial Officer
Date: November 11, 2003
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