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, 2004
------------------
_______ 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:
4,929,539
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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, 2004 and 2003......... 2
Consolidated Balance Sheets -
September 30, 2004 and December 31, 2003.............. 3-4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2004 and 2003......... 5
Consolidated Notes to Financial Statements.............. 6-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 11-14
Item 3 - Controls and Procedures................................... 14
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
Signatures............................................................. 15
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,
2004 2003 2004 2003
------ ------ ------ ------
Revenue:
Net sales $ 8,977,454 $ 8,632,494 $ 2,987,383 $ 2,315,417
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 4,001,219 4,018,227 1,402,404 964,711
Operating expenses 1,898,225 1,829,687 550,738 566,879
---------- ---------- ---------- ----------
5,899,444 5,847,914 1,953,142 1,531,590
Income from ---------- ---------- ---------- ----------
operations 3,078,010 2,784,580 1,034,241 783,827
Other income (expense):
Investment income 160,267 118,291 53,855 39,127
Gain on sale of assets - 500 - -
Other (17) (25) - -
Income before ---------- ---------- ---------- ----------
income taxes 3,238,260 2,903,346 1,088,096 822,954
Provision for income
taxes 1,157,000 1,032,000 389,000 290,000
--------- --------- --------- ---------
Net income $ 2,081,260 $ 1,871,346 $ 699,096 $ 532,954
========= ========= ========= =========
Earnings per common share
(basic and diluted) $ 0.42 $ 0.38 $ 0.14 $ 0.11
========= ========= ========= =========
Weighted average shares
- basic 4,927,688 4,892,737 4,929,539 4,910,022
========= ========= ========= =========
Weighted average shares
- diluted 4,937,223 4,910,370 4,937,237 4,930,761
========= ========= ========= =========
See notes to financial statements
2
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------ -------------
ASSETS (UNAUDITED) (DERIVED FROM AUDITED
FINANCIAL STATEMENTS)
Current assets:
Cash and cash equivalents $ 4,048,077 $ 2,710,029
Temporary investments 1,000,625 1,615,751
Marketable securities 6,124,386 6,098,986
Accounts receivable, net of
allowance for doubtful accounts
of $27,000 at September 30,
2004 and December 31, 2003
respectively 1,326,249 1,007,055
Inventories (net) 1,377,860 1,093,312
Prepaid expenses and other
current assets 213,310 264,978
Deferred income taxes 234,217 207,817
----------- -----------
Total current assets 14,324,724 12,997,928
----------- -----------
Property, plant and equipment:
Land 69,000 69,000
Factory equipment and fixtures 2,934,171 2,825,125
Building and improvements 2,081,497 2,068,752
Waste disposal plant 133,532 133,532
----------- -----------
5,218,200 5,096,409
Less: Accumulated depreciation 4,220,718 4,070,158
----------- -----------
997,482 1,026,251
----------- -----------
Other assets:
Processes and patents, net of
accumulated amortization of
$981,797 and $981,732 at
September 30, 2004 and December
31, 2003, respectively - 65
Other 700 700
----------- -----------
700 765
----------- -----------
$ 15,322,906 $ 14,024,944
=========== ===========
See notes to financial statements
3
UNITED-GUARDIAN, INC.
CONSOLIDATED BALANCE SHEETS
SEPETMBER 30, DECEMBER 31,
2004 2003
--------------- ------------
LIABILITIES AND (UNAUDITED) (DERIVED FROM AUDITED
STOCKHOLDERS' EQUITY FINANCIAL STATEMENTS)
Current liabilities:
Dividends payable $1,232,385 $ 737,736
Accounts payable 198,521 309,921
Accrued expenses 322,433 350,769
Taxes payable 114,456 -
--------- ---------
Total current liabilities 1,867,795 1,398,426
--------- ---------
Deferred income taxes 10,000 10,000
--------- ---------
Stockholders' equity:
Common stock $.10 par value,
authorized, 10,000,000 shares;
4,991,739 and 4,984,439 shares
issued, respectively; 4,929,539
and 4,922,239 shares outstanding,
respectively 499,174 498,444
Capital in excess of par value 3,740,613 3,717,160
Accumulated other comprehensive loss (75,079) (30,614)
Retained earnings 9,640,033 8,791,158
Treasury stock, at cost; 62,200 shares (359,630) (359,630)
--------- ---------
Total stockholders' equity 13,445,111 12,616,518
--------- ---------
$ 15,322,906 $ 14,024,944
========== ==========
See notes to financial statements
4
UNITED-GUARDIAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------
2004 2003
------- -------
Cash flows provided by operating activities:
Net income $ 2,081,260 $ 1,871,346
Adjustments to reconcile net earnings
to net cash flows from operations:
Depreciation and amortization 150,625 149,349
Amortization of bond premium - 5,548
Net gain on sale of equipment - (500)
Provision for doubtful accounts - 11,406
Provision for inventory obsolescence (91,000) 125,800
(Increase) decrease in assets:
Accounts receivable (319,194) (344,831)
Inventories (193,548) 65,567
Prepaid expenses and other current
and non-current assets 51,668 168,576
Increase (decrease) in liabilities:
Accounts payable (111,400) 31,539
Accrued expenses and taxes payable 86,120 71,623
---------- ----------
Net cash provided by operating activities 1,654,531 2,155,423
---------- ----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (121,791) (90,068)
Proceeds from sale of equipment - 500
Net change in temporary investments 615,126 1,871,751
Proceeds from sale of marketable securities 2,032,274 480,000
Purchase of marketable securities (2,128,539) (5,561,073)
---------- ----------
Net cash provided by (used in)
investing activities 397,070 (3,298,890)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 24,183 113,835
Dividends paid (737,736) (488,114)
---------- ----------
Net cash used in financing activities (713,553) (374,279)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 1,338,048 (1,517,746)
Cash and cash equivalents at beginning of period 2,710,029 3,184,599
---------- ----------
Cash and cash equivalents at end of period $ 4,048,077 $ 1,666,853
========== ==========
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,
2004 and the results of operations and cash flows for the three and nine months
ended September 30, 2004 and 2003. The accounting policies followed by the
Company are set forth in the Company's financial statements included in its
December 31, 2003 Annual Report to Shareholders.
2. The results of operations for the three and nine months ended September
30, 2004 and 2003 are not necessarily indicative of the results to be expected
for the full year.
3. Stock-Based Compensation: At its meeting on March 19, 2004 the Board of
Directors of the Company approved the adoption of a new stock-based employee
compensation plan to replace the previous two stock-based employee compensation
plans that expired in 2003. The new plan covers both employees and Directors.
The adoption and implementation of new plan was ratified by the shareholders of
the Company at the Company's annual meeting of shareholders on May 19, 2004. As
permitted under FAS 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 arrangements 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,
2004 2003 2004 2003
-------- -------- -------- --------
Reported net income $2,081,260 $1,871,346 $699,096 $532,954
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 0 (15,957) 0 (2,762)
--------- --------- -------- --------
Pro forma net income $2,081,260 $1,855,389 $699,096 $530,192
========== ========== ======== ========
Earnings per share (basic and diluted)
As reported $ .42 $ .38 $ .14 $ .11
Pro forma $ .42 $ .38 $ .14 $ .11
6
4. Inventories - Net
Inventories consist of the following: September 30, December 31,
2004 2003
---------- ----------
Raw materials and work in process $ 491,590 $ 225,443
Finished products and fine chemicals 886,270 867,869
---------- ----------
$1,377,860 $1,093,312
========== ==========
At September 30, 2004 and December 31, 2003, the Company has reserved
$128,000 and $219,000 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 $1,005,977 and $801,295 for the nine months
ended September 30, 2004 and 2003, respectively.
6. Comprehensive Income (Loss)
The components of comprehensive income (loss) are as follows:
Nine months ended September 30, Three months ended September 30,
2004 2003 2004 2003
------ ------ ------ ------
Net income $2,081,260 $1,871,346 $699,096 $532,954
--------- --------- ------- -------
Other comprehensive income (loss)
Unrealized gain (loss) on
marketable securities (70,866) 47,795 7,270 25,552
------- ------- ------- -------
Income tax benefit on
comprehensive gain (loss) (26,400) 17,827 2,800 9,547
------- ------- ------- -------
Other comprehensive income (loss) (44,466) 29,968 4,470 16,021
------- ------- ------- -------
Comprehensive income $2,036,794 $1,901,314 $703,566 $548,975
========= ========= ======= =======
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, 2004 and 2003.
Nine months ended Three months ended
September 30, September 30,
2004 2003 2004 2003
------ ------ ------ ------
Numerator:
Net income $2,081,260 $1,871,346 $ 669,096 $ 532,954
========= ========= ======= =======
Denominator:
Denominator for basic earnings
per share (weighted average
shares) 4,927,688 4,892,737 4,929,539 4,910,022
Effect of dilutive securities:
Employee stock options 9,535 17,633 7,698 20,739
--------- --------- --------- ---------
Denominator for diluted earnings
per share (adjusted weighted-average
shares) and assumed conversions 4,937,223 4,910,370 4,937,237 4,930,761
========= ========= ========= =========
Basic and diluted earnings per share $ 0.42 $ 0.38 $ 0.14 $ 0.11
========= ========= ========= =========
8. The Company has the following two reportable business segments: Guardian
Laboratories and Eastern Chemical. The Guardian segment conducts research,
development and manufacturing of cosmetic ingredients, personal and health care
products, pharmaceuticals and specialty industrial 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, 2003. 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, 2004 and 2003.
8
Nine months ended September 30,
2004 2003
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 8,119,929 $ 857,525 $ 8,977,454 $ 7,824,875 $ 807,619 $ 8,632,494
Depreciation and amortization 70,196 - 70,196 64,852 - 64,852
Segment income (loss) before
income taxes 3,251,553 (52,620) 3,198,933 2,894,764 14,191 2,908,955
Segment assets 3,018,158 362,946 3,381,104 2,076,219 303,359 2,379,578
Capital expenditure 106,556 - 106,556 62,808 - 62,808
Reconciliation to Consolidated Amounts
Income before income taxes
----------------------------
Total earnings for reportable segments $ 3,198,933 $ 2,908,955
Other income, net 160,250 118,766
Corporate headquarters expense (120,923) (124,375)
---------- ----------
Consolidated earnings before income taxes $ 3,238,260 $ 2,903,346
========== ==========
Assets
------
Total assets for reportable segments $ 3,381,104 $ 2,379,578
Corporate headquarters 11,941,802 10,958,098
---------- ----------
Total consolidated assets $15,322,906 $13,337,676
========== ==========
Three months ended September 30,
2004 2003
------------------------------------ ------------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ------------ ----------- ------------ ------------ -----------
Revenues from external customers $ 2,697,595 $ 289,788 $ 2,987,383 $ 2,086,738 $ 228,679 $ 2,315,417
Depreciation and amortization 20,429 - 20,439 19,045 - 19,045
Segment income (loss) before
income taxes 1,085,557 (6,566) 1,078,991 767,923 54,179 822,102
9
Earnings before income taxes
----------------------------
Total income for reportable segments $ 1,078,991 $ 822,102
Other income, net 53,855 39,127
Corporate headquarters expense (44,750) (38,275)
---------- ----------
Consolidated earnings before income taxes $ 1,088,096 $ 822,954
========== ==========
Other significant items
-----------------------
Nine Months ended September 30,
2004 2003
------------------------------------------ -------------------------------------------
Segment Consolidated Segment Consolidated
Totals Corporate Totals Totals Corporate Totals
------------ ------------ ------------- ------------- ------------ -------------
Expenditures for assets $106,556 $ 15,235 $121,791 $ 62,808 $ 27,260 $ 90,068
Depreciation and amortization 70,196 80,429 150,625 64,852 84,497 149,349
Geographic Information
----------------------
2004 2003
--------------------------- ---------------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
----------- ------------- ----------- -------------
United States $ 4,979,126 $ 997,482 $ 4,384,781 $ 1,046,745
France 1,117,867 1,069,869
Other countries 2,880,461 3,177,844
----------- ------------- ----------- -------------
$ 8,977,454 $ 997,482 $ 8,632,494 $ 1,046,745
=========== ============= =========== =============
Major Customers
---------------
Customer A (Guardian)* $ 3,654,792 $ 3,523,475
Customer B (Guardian) 959,980 876,078
All other customers 4,362,682 4,232,941
----------- -----------
$ 8,977,454 $ 8,632,494
=========== ===========
* At September 30, 2004 Customer A had a balance approximating 32% of accounts
receivable.
At September 30, 2003 Customer A had a balance approximating 28% of accounts
receivable.
10
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
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.
11
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 end 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 has reduced Eastern's inventory levels
in order to make the subsidiary more marketable in the event the Company decided
to sell the Eastern operation. This has resulted in some reduction in sales for
this division. Sales of this division have also declined as a result of
increased competition from new and existing competitors that are making
increased use of the Internet as a selling tool. Recently the Company entered
into discussions with several companies that expressed interest in purchasing
the Eastern operation, and is continuing discussions with one Company in
particular that could be a likely candidate to purchase the operation. Although
there is not yet any firm agreement between the parties, the Company is hopeful
that an agreement can be reached shortly.
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, 2003, and a
comparison of the results of operations for the three and nine month periods
ended September 30, 2004 and September 30, 2003. 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, 2003.
RESULTS OF OPERATIONS
Gross revenue from operations
-----------------------------
For the nine month period ended September 30, 2004 net sales increased
$344,960 (4.0%) versus the comparable period in 2003. The Guardian Laboratories
division ("Guardian") had a sales increase of $295,054 (3.8%) while the Eastern
Chemical subsidiary ("Eastern") had a sales increase of $49,906 (6.2%).
For the three month period ended September 30, 2004 net sales increased
$671,966 (29.0%) over the comparable period in 2003. Guardian sales increased
$610,857 (29.3%), while Eastern sales increased $61,109 (26.7%).
The increase in Guardian's and Eastern's sales for the three and nine month
periods is believed to be due mainly to normal fluctuations in purchasing
patterns of its customers.
12
Cost of sales
-------------
Cost of sales as a percentage of sales decreased to 44.6% for the nine
months ended September 30, 2004 from 46.5% for the comparable period ended
September 30, 2003. This decrease is mainly due to a favorable production
variance. 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 44.6% for the comparable
period in the current year.
For the three month period ended September 30, 2004 compared to the three
month period ended September 30, 2003 the cost of sales as a percentage of sales
increased to 46.5% from 41.7%. For the three months ended September 30, 2003,
cost of sales as a percentage of sales would have been 54.7% as compared to
46.9% for the comparable period in the current year. This decrease for the three
month period ended September 30, 2004 is mainly due to a favorable production
variance.
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.
Operating Expenses
------------------
Operating expenses increased $68,538 (3.7%) for the nine months ended
September 30, 2004 compared to the comparable period in 2003. For the three
month period ended September 30, 2004 operating expenses decreased $16,141
(2.8%) over the comparable period in 2003. The increase for the nine month
period was primarily due to the net effect of increased insurance costs and a
one time reserve for the payment of a civil fine in September of 2003 (see
"Legal Proceedings" section of the Company's Form 10-QSB for the period ended
September 30, 2003). For the three month period decreases in expenses were
mainly due to the aforementioned civil penalty that was accrued in September
2003.
Investment income
---------------
Investment income increased $41,976 (35.5%) for the nine months ended
September 30, 2004 as compared to the comparable period in 2003, and $14,728
(37.6%) for the three months ended September 30, 2004 when compared to the
comparable period in 2003. These increases were mainly attributable to an
increase in interest rates. Investment income is recorded net of brokerage fees.
Provision for income taxes
--------------------------
The provision for income taxes increased $125,000 (12.1%) for the nine
months ended September 30, 2004 when compared to the comparable period in 2003,
and $99,000 (34.1%) for the three months ended September 30, 2004 when compared
to the comparable period in 2003. These increases are due to increased earnings
before taxes of $334,914 for the nine months ended September 30, 2004 and
$265,142 for the three months ended September 30, 2004.
13
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased from $11,599,502 at December 31, 2003 to
$12,465,929 at September 30, 2004. The current ratio decreased from 9.3 to 1 at
December 31, 2003 to 7.7 to 1 at September 30, 2004. The decrease in current
ratio was due to a $.25 per share dividend declared in September 2004. The
Company has no commitments for any further significant capital expenditures
during the remainder of 2004, 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 $1,654,531 and $2,155,423 for
the nine months ended September 30, 2004 and September 30, 2003 respectively.
The decrease was primarily due to the increase in inventories and accounts
payable.
During the nine month period ended September 30, 2004 $397,070 was provided
by investment activities, as compared to the nine months ended September 30,
2003 when $3,298,890 was used in investing activities. The change from
$3,298,890 used in investing activities in 2003 to $397,070 provided by
investing activities in 2004 was due to an decrease in purchases of marketable
securities (primarily bonds) and redemption of some money market accounts.
Cash used in financing activities was $713,553 and $374,279 for the nine
months ended September 30, 2004 and September 30, 2003 respectively. The
increase is due primarily to an increase in dividends paid during the nine
months ended September 30, 2004.
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
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.
14
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS: NONE
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 Alfred R. Globus, Chairman and Chief
Executive Officer of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Kenneth H. Globus, President and Chief
Financial of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Alfred R. Globus, Chairman and Chief
Executive Officer of the Company, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Kenneth H. Globus, President and 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
September 30, 2004: one on August 5, 2004 pertaining to the issuance of an
earnings release by the Company on August 5, 2004; the other on September 13,
2004 pertaining to the issuance of a press release announcing the Company's
declaration of a special cash dividend.
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 5, 2004
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